Coal allocation mess: Ordinance to clean and open up; mines to be e-auctioned

Written by ENS Economic Bureau | New Delhi | Updated: Oct 21 2014, 13:55pm hrs
CoalCentral and state government companies would be directly allocated captive mines on ?priority basis?. (AP)
The NDA government on Monday took a decisive step to resolve the uncertainty stemming from the Supreme Courts decision to cancel coal mining allotments made between 1993 and 2010. Four weeks after the apex court quashed the allocation of 214 coal blocks, the union cabinet cleared a blueprint to acquire the land of these mines, along with the plants built on it, through an ordinance, with the aim of e-auctioning them.

While Central and state government companies would be directly allocated captive mines on priority basis, the blueprint, significantly, incorporates an enabling provision for amending the Coal Mines Nationalisation Act, 1973 in the future, with the objective of allowing commercial mining by private players a move that is being seen as a radical reform measure as and when it happens.

Briefing reporters after a cabinet meeting here, Finance Minister Arun Jaitley, who rejoined office on Monday after a prolonged health-related break, said: The Cabinet has recommended promulgation of an ordinance to the President in order to resolve the pending issues, particularly the situation arising out of the Supreme Court judgment quashing the allocation of the coal blocks. A key need for the ordinance was to ensure proper transfer of land from the existing owner to the successful bidder to whom the land is to be allotted, he said.

The apex court had on September 24 quashed allocation of 214 out of 218 coal blocks, terming the allotment methodology as flawed, and allowed the central government to take over operations of 42 functional mines. Drafted by the Coal Ministry after extensive consultations with Attorney General Mukul Rohatgi, the ordinance envisages that successful bidders in the e-auction would be mandated to pay the earlier allottee the cost of the land and the investments that went into the end-use plant. In reply to a query, Jaitley made it clear that there would be no right of first refusal and all bidders would have to compete in the e-auction through reverse bidding. As far as the users of coal are concerned, private entities in businesses such as power, iron and steel, and cement for so-called captive consumption will have to bid for such mines through e-auction. The auction process would be transparent and completed in three to four months and the proceeds would go to the state governments where the mines are located, Jaitley said. The entire mess that the UPA left behind from 2005 onwards will be cleaned up over the next four months, he said, adding that coal worth $20 billion that was being imported annually would be domestically substituted through this measure. The Finance Minister said the biggest beneficiaries would be the eastern states like Jharkhand, Orissa, West Bengal and Chhattisgarh, while states like Madhya Pradesh, Maharashtra and Andhra Pradesh would also benefit. This will financially empower the eastern states particularly (as they have most of the mines) and lakhs of labourers would get employment while bank capital held up with the allottee companies would be fruitfully utilised, he said. Responding to a query on whether the Coal Mines Nationalisation Act, 1973 would be amended to allow commercial mining, Coal and Power Minister Piyush Goyal said an enabling provision for future commercial use of mines would form part of the amendment. This is only for the future. There will be an enabling provision for the future where rules which are framed for commercial users of mines could also be decided by the central government. This would lead to optimal utilisation of the natural resource, he said. This process would not impact the structure of Coal India. It will continue to function as it is and all the mining requirements of CIL for the present and future will be adequately protected, he added. On allowing foreign players in the e-auction, Jaitley said only companies incorporated in India would be allowed to participate in the bidding for which the reserve floor price would be determined by a committee. He said the auction would be sector-specific. Commenting on the decision, Kalpana Jain, Senior Director, Deloitte in India, said: While the public sector companies like NTPC and State Electricity Boards will continue to be allocated coal mines on priority basis, the move to e-auction identified blocks for private sector users is most welcome. The decision paves the way for utilisation of the mines effectively. What remains to be understood is how investments made by earlier allottees as well as banks are going to be addressed, given that no right of first refusal is proposed for these allottees.