Government plays safe on coal auctions

Written by fe Bureau | New Delhi | Updated: Oct 21 2014, 06:46am hrs
Coal miningFM Arun Jaitley made clear the Centre?s intent to move towards denationalisation of commercial coal mining. (Reuters)
The government on Monday unveiled expeditious follow-up action on last months Supreme Court order that cancelled 214 captive coal blocks effective the end of this fiscal by seeking to promulgate an ordinance to revert these mines to itself to create a pool and subsequently reallocate blocks from it. While central and state public-sector entities will be allotted blocks on a nomination basis, a specified number of the blocks will be allocated to private companies through e-auction for end-use purpose.

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Finance minister Arun Jaitley, who announced the decision after a Cabinet meeting, also made clear the Centres intent to move towards denationalisation of commercial coal mining. While the first tranche of blocks for e-auction will be for the exclusive use by the firms they are allocated to, the ordinance to be issued by the President will contain an enabling provision for commercial mining, Jaitley said, without giving a time-frame.

Jaitley and power and coal minister Piyush Goyal were, however, quick to add that the interests of public-sector Coal India whose 10% stake is slated to be disinvested this fiscal would be fully protected. Commercial coal mining by the private sector, an epochal reform stalled for long for political expediency, is seen crucial for augmenting the countrys coal output, which is stagnating, leading to rising (and expensive) imports of the fuel. (Indias coal output grew at a measly 0.7% in FY14 to 562 million tonnes while imports surged 42% in FY13 and upon that 16% in FY14 to 169 million tonnes).

The pool of coal blocks will be segregated for auction in such a manner that prominent end-use industries like power, steel and cement wont compete with one another for the blocks and that a sufficient number of blocks goes to each of these sectors.

To the chagrin of the current holders of cancelled mines, they won't have the first right of refusal in the auction process and will have to compete with others for retaining blocks in which many of them have invested substantially (the total investments in the cancelled coal blocks and their end-use plants are said to be to the tune of R2.83 lakh crore).

Stating that the government's plan was to complete the reallocation in three to four months, Jaitley said that the land rights of the blocks will be transferred by the present holders to the new allottees on payment of compensation to be decided by a competent authority to be set up. The proceeds of the auction will go to the respective states, mostly in the coal-rich eastern part of the country.

The apex court on September 24 cancelled all 214 captive coal blocks allocated to private companies and public-private joint ventures it had held were illegally and arbitrarily allocated, dealing a body blow to the industry, but gave the government an opportunity to introduce a regime of probity and fairness in disbursal of the vital natural resource.

The companies that were producing coal from some of these blocks (37 blocks are already producing and in another five production is about to start soon) were asked to pay penalties. Industry had estimated that the penalty would amount to some R8,400 crore given cumulative production of over 280 million tonnes till March 31, 2015, when the cancellation would take effect.

The wait is on

* Ordinance to allow land above mines to be transferred to new users

* Auctions only for actual users right now

* Enough mines to be put out for captive users but no right of first refusal

* PSUs and state governments will get allocated mines

* Ordinance to have an enabling clause for commercial mining, but no timeline set for this

* Cannot call this a repeal of the Coal Nationalisation Act, says finance minister