All het up over coal

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The bill to replace an ordinance on coal, which had a provision authorizing commercial mining, may run into rough weather in Lok Sabha

By Vivian Fernandes


bill to restore competition in the coal industry had received the kind of reception in parliament that feminine derriere in lycra would in a khap panchayat. On December 8, the government withdrew the Coal Mines (Nationalization) Amendment Bill which was introduced in the Rajya Sabha 14 years ago but never made it to the Lok Sabha, because successive governments, BJP- and Congress-led, were unsure of support, not only from the opposition but also from some of their allies.

Private coal mining for commercial sale has been one of those no-go areas like foreign large retail stores, even though exceptions were carved out in the nineties. Private power plants, steel mills, washeries and cement factories were allowed to mine coal for their own use.

COMMERCIAL MINING

During the ongoing winter session, the government will replace with a bill, an ordinance it proclaimed in October to allow auctions of 204 coal blocks whose allocations (since 1993) the Supreme Court (SC) struck down in August as illegal. The new bill is innocuous, except for a provision that authorizes commercial mining, the same red rag that sent MPs raging all these years. However, given the foul mood of the opposition, the bill may take some knocks.

The Centre of Indian Trade Unions of the Communist Party of India (Marxist) has declared it will oppose those portions of the bill which go beyond curing the cancellations made by SC. In short, it will continue to oppose private mining of coal for sale.
The coal ministry’s main concern is to avoid disruption of supplies. It must auction 42 coal blocks before next April, so that mining does not cease in them. These are active mines, which is why the SC made an exception for them while deallocating the remaining 162 with immediate effect.

Fifty blocks of these 162, on the threshold of production having obtained all clearances and approvals, will be auctioned next.
To be eligible, the bidders for the 42 coal blocks should have made 80 percent of the investment in power, steel or cement plants, which the coal mines will feed. For the remaining 50 blocks, the investment limit in user industries has been scaled down to 60 percent.

The SC did not prescribe the mode of allocation; it only said that the procedure should be open and fair, though it did make its bias for auctions clear by not striking down coal block allocations to ultra mega power plants (UMPPs) which were awarded on the basis of the lowest tariffs they would charge consumers. Except for state-owned companies to whom the coal mines will be allocated, not auctioned, the coal ministry has now decided that auctions are the way forward.

DIFFERENTIATED BIDDING

Even among private bidders, there is a differentiation. For cement and steel mills, the highest bids will be the winning ones. Since both commodities are freely traded, the ministry expects their global prices to temper the bids for coal blocks. As far as power plants are concerned, a different method will be followed. There will be reverse auctions for the coal mines they are linked to.
Since power regulators allow fuel cost to be passed on, and electricity consumers cannot choose their suppliers, coal mine auctions for power plants would have sent rates shooting with cascading inflationary impact, the coal ministry says.

The winning bids for coal mines will, therefore, be tied to power tariffs. Efficiency in mining and heat generation will be the winning factors; not propensity to pay the most.“Revenue maximization is not the objective,” says Swarup, who took over as coal secretary in October. During his previous posting in the labour ministry, he won accolades for implementing the information technology platform of Rashtriya Swasthya Bima Yojna, the national health insurance scheme for those below the poverty line.

The Minister of State (Independent Charge) for Power, Coal and New and Renewable Energy, Shri Piyush Goyal briefing the media on an important power related issue", in New Delhi on September 15, 2014.

Piyush Goyal’s power and coal ministry must auction 42 coal blocks before April 2015

On December 8, the center withdrew the Coal Mines (Nationalization) Amendment Bill introduced in Rajya Sabha 14 years ago, which never made it to Lok Sabha.

 

 

The Indian experience has been that in infrastructure projects good intentions do not usually get translated into experience. Bidders try to win at all costs, knowing they can extract concessions or exceptions once they have their foot in the door.
For example, GMR, the concessionaire for Delhi airport, persuaded the civil aviation ministry headed then by Praful Patel, to get passengers to partly fund the project with a development fee without rendering any services in return.

Regulators also allowed the import-dependent UMPPs of Tata Power and Adani Power to charge higher rates than those on the basis of which they had been awarded the projects in the first place. This was done on the pretext that the Indonesian government has raised the minimum export price of coal. No haircut was imposed on them, though they should have priced in sovereign risk in their tariff calculations. Already, Anil Sardana, the managing director of Tata Power, has sought a clarification whether the 80 percent investment will be calculated on original cost or revised cost.

CHOKING COMPETITION

If the fear is that electricity consumers will be gouged (and they are), the obvious cure is to release the competitive spirit of the 2003 Electricity Act and auction the coal blocks to the highest bidders even among power companies.
Conditions should be created to allow big power users, to begin with, to buy the cheapest power from wherever it is available. Power sector regulators have, instead, choked competition.

Last January, The Times of India reported that Delhi’s electricity regulator, Delhi Electricity Regulatory Commission, had imposed a surcharge of Rs. 3 a unit on those who wished to buy power from whoever they wanted. Open access in Delhi is allowed to consumers with a sanctioned load of one megawatt and above. The surcharge, plus wheeling charges, have made migration from incumbent distribution companies too expensive.

Power and Coal Minister Piyush Goyal says the electricity act will be amended to allow all consumers to choose their distribution companies like they do for telecom services.

The best course would have been to first get the new coal bill passed and auction the coal blocks without any end-use requirement. Bidders would have been cautious knowing that profiteering would trigger imports.

The SC found that in the 36 meetings of the screening committee for coal allocations between 1993 to 2008, there was no objective criteria for choosing the applicants or giving any of them priority over others. The norms were neither uniform nor consistently applied. There was touching faith in the information supplied by applicants and little verification. State governments were allowed to mine coal for commercial sale on their own or through joint ventures with private companies, in violation of the law which allowed only central government entities to do so.

The architect of reforms, Prime Minister Manmohan Singh, was coal minister for part of the time when the illegalities happened. Even he ensured that the “hidden hand of the market” (to borrow trade economist Jagdish Bhagwati’s quote) remained truly hidden during his tenure.

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