Despite the natural resources in question being in short supply, a majority of industry players lucky enough to win allocations squat on them and delay commercial production. This is despite the fact that in each such sector, there are clear timelines set by the government to either roll out services or start commercial production.
Analysts say the main cause behind this trend is the surge in valuations of companies that get such allocations. There are several players who enter such sectors to get a high-valuation tag to cash out later and, therefore, the delays are deliberate in many cases, an analyst who tracks the infrastructure sector said.
Recent controversies surrounding the allocation of coal blocks to a host of companies in the power, steel and cement sectors and prior to it the grant of 122 telecom licences in 2008 by former telecom minister A Raja highlight the malady best.
Since 1993, 216 coal blocks have been allocated to eligible public and private companies in the power, steel and cement sectors. Out of these, 24 coal blocks have been cancelled due to undue delays in bringing them under production within the specified time frame. Out of the cancelled ones, a few blocks were reallocated to eligible companies later, bringing net captive blocks currently to about 197 with 50 billion tonnes of reserves. Most of these blocks were allocated during 2004-08 when there was a spurt in applications from companies planning to set up coal-fired projects. However, so far, only about 28 such blocks have started production and are mining just about 45 million tonne of coal against the potential of over 200 million tonne.
This is when the coal policy specifically states that production from captive blocks must commence within 36 months (42 months in case the area is in forest land) of the date of allocation in open-cast mine and in 48 months (54 months in case the area falls under forest land) from the date of allocation in case of underground mines.
Those who have missed deadlines are companies like ArcelorMittal India and GVK Power (they jointly own coal blocks), RPGs CESC, Jindal Steel and Power, Gagan Sponge Iron, SKS Ispat and Chhattisgarh Mineral Development Corporation, among others.
Some of these companies have already been issued show cause notices by the coal ministry.
The same trend was witnessed in the 2008 allocation of telecom licences and spectrum by Raja. After tweaking all rules mentioned in the rule book, Raja gave out 122 licences, which generated much controversy and a trial is on currently in the court and the Supreme Court has cancelled all of them on grounds of illegality. However, what is often lost is that of these 122 licensees, the Telecom Regulatory Authority of India (Trai) had recommended that 74 be cancelled because they had failed to roll out services two years after bagging spectrum. In quite a few cases, all licences given to a single company were recommended for cancellation.
As per the licence agreement, new licensees are required to cover at least 10% of the district headquarters by the end of the first year of being given the licences/spectrum. Under licence conditions, the telecom department has powers to impose a fine of Rs 5 lakh a week for the first 13 weeks of delay, Rs 10 lakh for the next 13 weeks and thereafter at the rate of Rs 20 lakh for delays up to 26 weeks. If any operator fails to fulfill the obligation even after 52 weeks of delay, then it has the power to cancel the licence.
No wonder the share of new licensees is only around 5% in the overall mobile market. India has 800-plus mobile subscribers and nine new companies, who got the licences in 2008 put together have only around 70 million subscribers. Among this too, around 55 million users are contributed by two operators who have shown relatively better performance.