Scrapped captive coal mines: Production around half the Financial Year 2015 peak

Only 89 of 204 blocks cancelled by SC in 2014 reallocated; production delayed in 61; investor interest absent, so no fresh bidding.

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A high-power expert committee was constituted on December 2017 to examine the current bidding system to suggest changes for conducting future coal-mine auctions. (Reuters)

Forty-two months after the Supreme Court cancelled 204 captive coal block licences saying these had been allocated in an illegal and arbitrary manner, production from these blocks are far below the level before the court’s decision. As the court had, in its September 2014 order, allowed 42 operational blocks of the cancelled lot to function till March 2015, these mines’ production peaked in FY15 at 52 million tonnes but has since plunged headlong.

According to official sources, 89 of the cancelled blocks have been reallocated so far and only 28 of these are producing coal right now. Post-reallocation, these blocks’ cumulative production — excluding that of seven blocks that were given by the court to the “custody” of Coal India, which haven’t faced any disruption — was just 40.5 million tonne till January, 2018, that is, average annual production of just around 12 million tonnes. Even with the production of the seven “captive mines” with Coal India, the total output from the mines impacted by SC decision at present is half the level in FY15.

A waning of investor interest has forced the government to defer auction of the remaining of the cancelled blocks. In fact, it had to cancel the fourth round of auctions in early 2016 due to lack of response. This is in sharp contrast to the aggressive bidding for the 84 blocks that went under the hammer in 2014-15, which allowed the government to claim that coal-bearing states will get revenue to the tune of `2.4 lakh crore during the lifetime of the blocks.
Also, several of reallocated blocks are yet to commence production due to multiple reasons.

Coal secretary Susheel Kumar told FE: “Among the re-allocated blocks, six are under litigation in Karnataka, three are facing delays in grant of lease by the states concerned, three are still awaiting environmental and forest clearances, two are affected by revision of mining plans and one is impacted by delays in land acquisition.”

These apart, many of the reallocated blocks are yet to start production because the developers, who won the blocks in auction, are in financial distress, the official added.

To be sure, the government had initially estimated that production from the non-operational mines to begin only after June, 2018. Kumar said eight more of the reallocated coal blocks would be operational by March, 2019.

The stagnation in captive coal production should be viewed against the government’s claim in 2014 that unless it went for quick auction and reallocation of the mines following the SC verdict, production of these blocks would have come to a standstill, and harmed the user industries. Despite some improvement in CIL’s production in recent years, many power plants in the country are facing chronic fuel shortage.

According to sources, production could not be started at the Trans Damodar block, with extractable reserves of 47.3 mt, because of land acquisition issues. Similarly, the Khagra Joydev mine, with reserves of 103.8 mt, is waiting for the approvals of mining license and land mutation.

Experts have also cited over-aggressive bidding, tepid growth in power demand, financial stress of the mine developers and legal issues as the other reasons behind slow production growth. Essar Power, which had won the Tokisud North coal block, has requested the coal ministry to surrender the block after electricity tariffs of power projects linked with captive coal blocks were capped. This coal block was reserved for the company’s 1,200 MW Mahan power project.

A high-power expert committee was constituted on December 2017 to examine the current bidding system to suggest changes for conducting future coal-mine auctions.

Out of the 89 reallocated captive mines, 50 went to the regulated power sector (nine after auctions and 41 directly allotted), which consumes more than 70% of coal produced in the country. As many as 26 blocks (22 after auction and the rest without auction) went to non-regulated sectors such as cement and steel. PSUs and state governments were allotted 13 previously captive blocks for commercial mining.

The country’s overall captive coal production, including the mines which have not been impacted by SC order, is also stagnating. Production from the captive blocks held by user industries was just 28.8 mt in FY16 and 32.2 mt in FY17 (including the production of seven unallocated “captive mines” in CIL’s custody, whose production was 12.5 mt in FY17). As compared to this, Coal India produced 554 mt of coal in FY17 and 386 mt till December-end in the current fiscal.

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