Nomination is a win-win

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December 3, 2014 1:16 AM

Coal block allocation via nomination to keep electricity prices in check...

The government’s decision to reallocate cancelled coal blocks to state-owned power producers like NTPC and Damodar Valley Corporation through the nomination route is expected to keep private generators from placing adventurous bids for coal mines, and thereby curb electricity tariff.

The Coal Ordinance issued by the government to reallocate 204 coal blocks that were deallocated by the Supreme Court in September has envisaged handing back mines to PSU allocatees without auction, thus, continuing the existing policy.

However, the PSUs will have to pay a reserve price to be fixed by the nominated authority conducting the auctions. In contrast, private players will have to bid over and above the floor price that the authority may decide for each block.

Since private generators will have to compete with state-owned power producers for customers, the former will be under pressure to keep their generation costs competitive and hence will be restrained from making overly aggressive bids.

The fear that the policy may give rise to multiple coal prices, distorting the power market also seems to be unreal given that both PSUs and private players have the option of seeking coal linkage from Coal India in lieu of captive mines.

However, the Centre will have to keep a watch on state-level agencies who are to be given back their cancelled coal blocks through the nomination route. Some of these mining agencies had cut deals with private players which went against the spirit of law and attracted judicial action.

Since the nationalisation of coal mines in 1973, commercial coal mining has been the exclusive preserve of state-owned Coal India Ltd. As the  gap between domestic coal demand and supply widened, the government amended the law in 1993 to allow captive coal mining by end-use projects. The blocks were allocated to the private players through the Screening Committee route while PSUs got mines through the nomination route. However, the Supreme Court in August ruled that the allocation of all coal blocks except four was illegal.

The proposal for auction of captive coal blocks was first mooted by the coal ministry back in 2004. But the auction began only in 2013. In the meantime, the government allocated dozens of blocks to private players without auction. In its audit report tabled in Parliament in August 2012, the CAG rapped the government for delay in implementing the auction route for coal blocks. The CAG reckoned that private players unduly benefitted to the tune of R1.86 lakh crore due to delay in auction.

The government started the auction in late 2013 and put up three blocks for bidding. However, it could not find any takers for these blocks. The Central Mine Planning and Design Institute (CMPDI), which floated the tender, was surprised by the lukewarm response. In  the wake of the apex court judgement, the coal ministry has been forced to formulate new guidelines .

Although India has world’s fifth largest coal reserves, its coal imports have risen sharply in recent year. Coal India, which accounts for 80% domestic coal production, is struggling to raise its output while fast-paced capacity addition fuels coal consumption.

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