What the ailing coal sector needs to learn

Tags: Opinion

The ministry must secure approvals before blocks are auctioned

What the ailing coal sector needs to learn
SURPLUS SUPPLIES: In this 2011 file photo, workers use heavy machinery to sift through coal at the Adani Power company thermal power plant at Mundra, some 400 km from Ahmedabad
Of late, Coal India has become one of the favourite bashing boys for all and sundry (Disclosure: I hold shares of Coal India bought in the IPO) thanks to the screaming shortage of coal required to fire power plants. But coal ministry data reveals that out of 36 captive blocks allocated to power companies, only five have come into production. Put another way, even the supposedly efficient private sector has been able to commercialise just one out of every seven blocks made available to them. In a reply to a question in Parliament, minister of state for coal Pratik Prakashbapu Patil said that thanks to the deficit in availability of domestically mined coal, imports of the carbonaceous matter grew from 68.92 million tonnes per annum in 2010-11 to 145.79 mtpa in 2012-13.

“The gap between demand and indigenous supply of coal has been assessed to be of the order of 185.5 million tonnes in 2016-17 and is envisaged to be met through imports by consuming sectors,” said Patil in reply to the question in Lok Sabha.

No wonder, prime minister Manmohan Singh and finance minister P Chidambaram have been crying themselves hoarse over how the burgeoning coal imports have been pressuring the current account deficit, piling up avoidable pressure on the Indian rupee. With India blessed with one of the world’s top five largest reserves of coal, industry and the government have been calling exploitation of our own mineral wealth for economic growth, rather than exporting capital. Sadly, our ability to realise this desire seems questionable.

Coal ministry data shows that out of the 160-odd coal blocks allotted since 2004, only 11 have started production. As a penalty, the interministerial group (IMG) cancelled allocations for 47 blocks. But, India Inc, which has Rs 2.77 lakh crore tied up in associated end use plants, is hardly amused.

Not only equity but also loans of several state run banks amongst others, are stuck in this logjam of projects, which would be devoid of any reason to exist without the captive coal supplies. Given the seriousness of the non-performing assets (NPA) in the banking industry, India can ill afford to let such a large quantum of loans sour. Finding a way out of this mess calls for a whole new approach.

Along with auction of coal blocks, the government needs to borrow a couple of ideas from the ministry of power’s ultra mega power plant policy initiative. Just like Power Finance Corporation sets up a special purpose vehicle that secures in principle environmental approvals before it bids out a project to prospective developers, the ministry of coal should secure environmental and land approvals before any blocks are auctioned. In fact, the whole mechanism of the IMG formed in June 2012 to ‘review the progress of development of allocated coal blocks and associated end use projects,’ is critically flawed.

The IMG chaired by the additional secretary coal, comprises representatives of the ministries of power, steel, commerce and industry, department of industrial policy and promotion, law and justice, and departments of legal and economic affairs, respectively. But the Constitution of India clearly gives the power to accord mining licence and prospecting licences to states. The conspicuous absence of any representative of the state governments where the end use projects and mines are to come up as also the ministry of environment in the IMG shows that the entire mechanism is infructous, as key stakeholders have not been consulted at all. In fact, the ministry of coal ought to form an IMG consisting of all relevant stakeholders to clear and vet coal blocks for allocation before they are auctioned rather than after their allocation.

Without the vetting and involvement by stakeholders prior to auction/allocation, it’s difficult to secure any buy-in for projects. In this scenario, the IMG ends up being a witch hunting exercise. What’s more, the country loses years waiting for coal supplies that never come, and banks and investors scratch their heads waiting for returns from projects that fail to take off.

(The author, a former journalist, is an independent corporate watcher)


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