A self-inflicted political crisis

Two wrongs do not make a right. If a lack of transparency and objectivity in the allocation of coal blocks by the government to various companies since July 2004, was wrong, it would be equally wrong to take those mining licences back simply because some of the allottees failed to meet their operational deadlines. The latter would be wrong simply because those coal blocks were not allotted to parties for commercial mining operations. Their operations were linked with what is called in technical terms ‘forward integration’ of their function as raw material provider for captive use by the prospective producers of steel, power and cement. Mined coal will be a total waste if those respective captive users are not quite operationally ready with the linked projects to consume the raw material.

Coal is a very import input for all the three core sector industries. The country’s two major black coal producers – Coal India and Singareni Collieries Limited, both in the public sector – have failed to meet the growing demands of the thermal power, steel and cement industries, choking their growth and, in the process, slowing down the progress of several vital sectors of economy linked with the availability of electricity, steel and cement. Even less preferred lignite coal – also mined almost entirely in the public sector – used for power generation is in short supply.

It was because the government coal companies had failed to meet the growing demands of the user industries for years forcing the latter to import coal from all over the world at huge costs, including freight and insurance, the United Progressive Alliance [UPA] government, soon after it came to power in 2004, allowed conditional private coal mining for captive use by the willing core sector industries. No one is questioning the government’s intention with regard to allowing captive mining of coal by user industries, which was a right decision and highly overdue as well. It is the methodology adopted by the government to allocate the coal blocks to private parties, which has become a matter of big political controversy, only after the Comptroller and Auditor General [CAG] report noted that the allottees made windfall gains by securing the coal blocks without bidding. The report said the government action caused a Rs 1.86 lakh crore revenue loss to the exchequer.

Since July 2004, as many as 142 coal blocks were allocated to various parties by the government. Of them some 58 were awarded between 2004 and 2006 when the department of coal was under the direct charge of Prime Minister Manmohan Singh. The government, which has challenged the CAG’s assertion of the revenue loss to the exchequer, has been constantly denying any wrong doing in the process of allocation of coal blocks. If the government has done no wrong in allocation, why is it out to do something terribly wrong by threatening to take back those 57 allotments for failing to start operation within an impractically ‘reasonable’ period? India is yet to become a free economy. The government controls the economic policy. An entrepreneur is made to sing and swing to the tune of the government. 

Have those business houses, including the large ones such as the Tatas, Arcelor Mittal, Reliance and Jindals, already put up the projects respectively linked with captive coal consumption to be raised from the designated mine blocks? If not, won’t it be totally unjust to cancel the allocation of those coal blocks simply for the delay in starting the mining operation? How does it help them by starting the mining operation and storing thousands of tonnes of coal at pitheads well ahead – maybe, years – of the erection of main plants which would consume the captive mineral resource? Who will pay for huge losses on account of unused pithead stocks since mined coal can’t be sold commercially in the market to meet demands of other consumers?

The setting up of large core sector projects in India has not been easy even for government undertakings. Land acquisition, rehabilitation of and compensation to land-losers, environment clearance, road and rail links, power and water connection, social infrastructure creation, capital goods procurement and fund arrangement take years. In this regard, the poor project implementation track records of many of the large central and state undertakings such as SAIL, GAIL, RINL, Indian Iron, NHPC, Cement Corporation, CIL and state power corporations may be cited as the best examples. They caused massive time and cost overrun for those companies often creating big holes in their balance sheets for years. Private sector enterprises can’t afford such luxuries.

The allotted coal blocks should be ready for mining operation only when their captive industrial consumers are ready to off-take the raw material. The government and the industry are fully aware of the sequence. It is a classic chicken and egg situation. One can’t be delinked with the other. Raw material production and procurement can’t be delinked with the status of operational readiness of its actual users. Instead of blaming those clock block allottees for not keeping their operational timelines and consequently threatening to cancel their licences, the government would do well to hinder the hindrances to the setting up of new power, steel and cement projects with which the operation of those coal blocks are linked. Let a union cabinet committee first examine why those large coal consuming projects failed to come up on time before deciding on the fate of those idle coal blocks.

It will be extremely unfortunate and unwise if the captive coal linkage facility to large user industries is made a victim of a political face-saving action by the UPA government, which does not seem to have any strong logical explanation in defence of its policy of arbitrary allocation of national resources – be they underground minerals or air-waves – to industry. If anyone is at fault for practising such policies, it is only the government. Industry, which lobbies all over the world with government for concessions, can’t be made to fall prey to government mistake, deliberate or otherwise. The UPA government must spare India’s energy-starved industry at this critical juncture of economy and explore other means to save itself and come clean of the current waves of self-inflicted political crisis. [IPA]