No commercial mining of coal yet

Written by Subhomoy Bhattacharjee | Updated: Oct 22 2014, 08:07am hrs
The announcement by the Centre on Monday that it soon plans to go ahead with coal auctions must show the Supreme Court that the Centre, indeed, has the power to conduct such auctions and will help clear up some of the debris from the two-decade-old process of allocating the coal blocks.

In response to the two Supreme Court orders that struck down the allocation of coal blocks by successive governments since 1993, finance minister Arun Jaitley and power and coal minister Piyush Goyal have made three key announcements. They have said, through an ordinance, 74 coal blocks that are already producing or close to it will be auctioned off in the next three to four months.

The auctions will be essentially for the private sector end-users while public sector companies may still get blocks on an allocation basis. The ordinance will also provide for transfer of land rights on which the mines are situated to the companies which get the mines.

An ordinance of this sort is essential at this stage to get coal mining going beyond what Coal India and Singareni Collieries Company Ltd (SCCL) do. There was just no way, otherwise. The issue is whether it will be enough to deliver what it promises.

The Coal Mines Nationalisation Act of 1973 is an interesting law. It gave Coal India, and later the SCCL, the power over all coal blocks in the country. No entity, including even the Centre, has the right to give any mines to anyone except for some captive use, as per the law passed by the then Congress government under Indira Gandhi.

A crucial amendment to the Act was made in 1993 to create a leeway. The government introduced a clause to create the power to decide what a credible end use was. So, now mines could be given blocksnot necessarily for power, steel or cement only, but also conceivably for other commercial use. But the amendment left it unclear who would exercise this rightthe Centre, the states or Coal India. This was a costly omission, as has been found through the Supreme Court hearing of the coal block allocations matter. The Supreme Courts strictures against the screening committee are on this ground. The clamour for auction flows more from the observations made by the auditor. I mention these differences because the Centre has retained the right to allocate blocks, even if only to public sector entities, as the ministers have made clear.

Since the Supreme Court has held that, without clarification on these matters, allocation of coal blocks to private or even joint ventures between government companies and private parties were not possible, the ordinance will create a room for the Centre to claim ownership of the surrendered blocks and consequently get the right to allocate or auction them.

In doing so, the ministers are also right to say the coal blocks or mines will not be privatised. This follows from another legal development which happened in the past few years.

The government will instead use another act, i.e. the amended Mines & Minerals (Development & Regulation) Act, as the reference point for the ordinance on the coal mines. The MMDR was amended in 2010 to bring several aspects of coal mining under it without tampering with the Coal Mines Nationalisation Act. This has become the Act under which all recent decisions on coal have been taken, including the plans for auction of coal blocks to state government entities. It is a different matter that the UPA government could not auction even one block to any state through this route but that was because the Centre was using the provision to shield itself from barbs that it had not moved on auctions. This Act will now play a critical role.

So, Goyal is right in saying that there will be no tampering with the Coal Mines Act. And, in all fairness, it could not have been done. An Act to nationalise the coal mines cannot be amended to do exactly the opposite. Whenever the government feels it has the political capital to bring in commercial coal miners as opposed to just commercial coal mining, the Act will have to be abrogated. Meanwhile, coal from privately-owned mines will not always go fully to the end-use plants as it is impossible to create such an engineering situation; so, there will have to be a search for a legitimate market beyond.

But a crucial aspect left undecided is ownership of the assets of the blocks, including the employees of these companies. If the coal block is not won back by the party which has lost it, would the employees get transferred with the coal to the new companies In some cases, they would be public sector employees and, by the roll of dice, private sector ones as well. A lesser problem is the magnitude of investments made in these blockswould those be also a part of the eventual price of those blocks Any auction has to take account of these major costs. Commercial mining of coal is still a long way off.