Indian Coal Sector - The Way Forward

Opening the coal sector fully for commercial mining, to private investors to compete with CIL, is the answer for the country to accomplish self sufficiency in coal.

Photo: Reuters Photo: Reuters

1.The status:
The Supreme Court ruled on August 25, 2014, that the coal block allocations, made both through the Screening Committee and the government dispensation routes, were illegal and arbitrary. The consequences of this judgment were ordered by the Hon'ble Supreme Court on September 24, 2014, wherein all allotments, except four coal blocks mentioned in the order, were cancelled. Thus, the journey of captive coal blocks allocation, started in 1993, has come to an end by making a sort of crash landing after 21 years, placing the entire coal sector on the crossroads.

The ruling is likely to cause many far reaching "consequences" for the Indian coal sector in terms of its effect on coal production, on coal supplies to the core/other industries, on the resulting compulsion for coal imports, in particular, and the Indian economy, in general. The apex court's decision should act as an opportunity for the government to have a full review of the coal sector policy and come up with appropriate coal reforms. Therefore, it is now the time to think, address and find the right way forward to resolve the challenges that have emerged from the cancellation of allotment of coal blocks. The following can be the line of action and "The Way Forward".

2. The Way Forward:

The immediate action is to draw and implement quick plan of action to ensure coal supplies to all the operating end use plants /companies affected by the SC's order, without much disruption. The alternative ways and means to keep operational changeover from April 1, 2015, in 37 blocks that are already producing, has to be decided by the Ministry.  

In case of 37 producing blocks, if the operations during the coming six months (being left to the present allottees as per the order) are not closely/strictly monitored and necessary checks not exercised, the allottees of these captive coal blocks, in all likelihood, would try to stop removing the Over Burden (OB) and extract all the exposed coal in the opencast mines, thereby making the benches vertical and unsafe by March 31, 2015. In case of underground mines, the allottees would try to extract easy coal from favorable mining districts and leave the mine only with difficult patches to work after March 2015. In both the cases, there would be added problems / constraints related to the operation as well as safety. This will affect coal production from these mines during 2015/16 and the following years too.

There are two options to deal with these 37 blocks. They are:

(i) The first option is to hand over these operating blocks to Coal India (CIL) from April 1,  2015. In that case, CIL has to mobilize and re-position all the operational and related arrangements to keep the production continuity in these mines. CIL, however, has its hands full trying to achieve its own coal production target.  Coal India's production itself is nearly stagnant for the last four years or so and, therefore, they are slowly shifting from the departmental operation to outsourcing route. They themselves are in the path of engaging MDOs to operate their own mines to augment production. As experience speaks, it may take many months by the time CIL re-positions all the required arrangements to wok these blocks. During such transition period (which may take many months) the production from these blocks may be negligible.

Moreover, all these captive mines, which were earlier considered to be having adverse geo-mining conditions and, so, were listed for the captive category, are entrusted back to CIL, the expected results from these mines may not be so encouraging. Therefore, the country cannot expect much contribution from these operating captive blocks in the year 2015/16.

All these aspects have to be kept in mind before going to this option.

(ii) The second option is to go for a 'swift' bidding process to reallocate theses 37 operating blocks. The word 'swift' because, going by the past experience of the inordinate delay witnessed in the process of auction pursued by the Ministry of Coal, it will take much time if the 'business as usual" is adopted. So, the bidding process must follow a fast track mode, 'with a difference', so that the blocks are re-allotted well before March 2015. In doing so, the government can also consider, as a matter of natural justice, giving the right of first choice of allotting to those companies, whose coal blocks were cancelled, provided they compete and fulfill the required criteria decided and fixed by the Government.

(iii) As regards the continued and smooth development (with no loss of time) of five cancelled blocks, which are ready for production, the above said same 'swift' bidding process to reallocate them has to be vigorously pursued so that the reallocation is completed in three months. Here too, the government can consider, as a matter of natural justice, giving the right of first choice of allotting to those companies, whose coal blocks were cancelled, provided they compete and fulfill the required criteria decided and fixed by the government.

Long term:
This is for all other cancelled blocks and the blocks that may be carved out in future.

The blocks, which were not de-allocated by the Ministry of Coal after intensive review by the IMG, were progressing reasonably well because of close monitoring/review from time to time. They would have also progressively come in to the production mode in a phased manner during the coming years. Now, with the cancellation, their development would also remain disrupted till they are re-allotted by the Ministry. Going by the past experience, such allotments through competitive bidding route may take at least one to two years. There is a possibility that the auction route may not be as successful as we expect due to lack of bidding or proper participation. Till then these blocks would remain idle. Besides such delays, some other issues may crop up to block the process and make the delays more prolonged. All these aspects are to be kept in mind and quick action taken to re-allot all these blocks.

In doing so, what was stated as saying that - 'the government would turn the "Coal Ruling" into an opportunity and wants to move forward by cleaning up the past' needs to be truly fulfilled. On the long term, the decision taken by the government has to be well thought and the need to do away with the monopoly of Coal India in coal is also to be addressed.

In order to accomplish that, there are two routes to move forward in governing the coal sector. Both routes are discussed here to assess the respective merits and demerits to understand the long term implications and decide the right direction.  They are:

(a) First Route - to allot coal blocks, as may be redrawn,  by competitive bidding only to the captive users (as the present law permits) or

(b) Second Route - to resort to open auction, after coal mining is completely opened to private operators and coal mining is permitted for commercial purpose.

(a) First Route - Sticking to the option of allotting blocks (through bidding) only to the captive users:
Before deciding to stick to this option, we have to look back to the experience the country is having from 1993 in pursuing this option. Allotment of 218 captive coal blocks has brought about newer problems and issues for the government to resolve, instead of increasing the coal production for the country.

The reason why the very captive mining route failed the nation is that the companies to whom the blocks were allotted were not experienced in mining. In the developed nations, it is gathered that the natural resources (like coal, minerals, oil, gas etc) are assigned only to those who are capable of mining them. In our own country too, the oil/ gas blocks are given out by bid route only to those who score highest points on technical criteria (out of the assigned 70 points of the total 100), together with the points scored on financial criteria (out of the remaining 30 points) in terms of Production Linked Payment (PLP) etc. On similar lines, the company applying for a coal block, to a large extent, must have the core competence in coal mining or legally associate a coal mining company having the set out experience and expertise in mining operations, to become technically eligible and capable of mining and also give out maximum revenue to the Government.

In the case of coal block allocations, made during 1993 to 2010, they were given out to end users based more on their preparedness of the end use plants rather than on their core competence by way of mining experience/expertise/capabilities. In the process, 218 blocks were allotted to about 150 companies or so, who have not done any sort of coal mining. This aspect needs to be fully taken care in taking the corrective steps.

Moreover, the coal blocks carved out for allotment during the last phase were small and the boundaries, with straight lines just to demarcate the blocks, blocked lot of coal along the boundary lines of the blocks. Besides the conservation aspect, such blocks cannot have large mine capacities to make them technically as well as economically more viable. So, while drawing the coal blocks for auction, large and fully explored blocks should be carved out. For doing so, the cancelled blocks can be merged to make it large. For example, Utkal A to D blocks can be made in to one as Utkal block. On similar lines, many large blocks can be carved out and the exercise to do so must start immediately. The government should consider giving the right of first choice to those companies, whose coal blocks were cancelled, provided they compete and fulfill the required criteria.

By taking care of these aspects, this option can be resorted to as an interim measure in allotting coal blocks.
(b) Second Route - Resorting to open auction after opening coal mining to private operators for commercial purpose:

Opening coal mining to private operators for commercial purpose is the long term and the only way to get out of the present mess that the Indian coal sector has landed in. For this to happen, the Coal Nationalization (Amendment) Bill 2000, introduced in the Rajya Sabha in 2000, has to be placed again in Parliament and passed so as to throw open coal to private mining . By doing so, the monopoly regime of Coal India in mining and selling coal would come to an end and the sector would get opened for commercial purposes, as was done in the case of aviation, power, oil/gas, telecom, and steel sectors. This would bring in healthy competition and, in turn, increase coal production in the country significantly and bridge the wide gap between demand and supply.

There is a wrong notion in the minds of the trade unions operating in the coalfields that if the coal sector were to be fully opened for private investment, Coal India Ltd would get privatised. The fact that Coal India will not be privatised must be explained to the trade unions and their apprehensions about job security of employees in Coal India must be set at rest. This can create the atmosphere for getting the pending bill passed in Parliament, which in turn would create an enabling mechanism, whereby both Coal India and private coal producers can co-exist, grow and serve the nation.

Once the coal sector is fully opened, both for exploration and exploitation, the rules for selecting companies for assigning coal bearing areas for exploration and for allotting the large blocks for exploitation can be framed by keeping the technical as well as the financial criteria requirement in the lines mentioned above. Large coal blocks should be auctioned globally among the world class coal mining companies, both Indian as well as from overseas. By this process, the competitive bidding would be limited to few large blocks, making the whole process easier to manage.

In pursuing all these steps, both on the short-term (immediate) and long-term basis, certain ground realities, as to what will happen to the surface rights in the form of land acquired by the old allottees, the mining lease granted to them, the issue of dealing with the immobile and mobile assets in such blocks, the returning of BG that was encashed from them, men employed in the mines etc. ; are all to be addressed and settled. The whole situation is not that simple as is thought and said to be and is in a sort of mess. There can be litigations and delays on these counts too.

4. Other Aspects:
In addition, the following relevant aspects are also suggested for the consideration of the government.

Regulatory Authority:
Together with implementation of fundamental changes, like opening up the coal sector fully for private investment, a Regulatory Authority should be appointed to usher in, implement and oversee a level playing field for all producers in the coal sector. Such Independent Coal Regulator shall oversee the operational, pricing and safety aspect of the sector.

Land acquisition and related clearances:

After these actions, the aspect of abnormal delays in land acquisition, grant of forest / environmental clearances etc. are also to be addressed. The new policy should streamline and expedite the procedure for land acquisition and grant of various clearances required for development and operation of coal mines, be they are in public or private sector. The issue of land acquisition is getting more and more cumbersome, with the land owners becoming increasingly vocal and resistive. So much so, the delay in acquisition and possession to make it free for mining is becoming more. Considering the sensitive nature and the emotions that play in such matters, it may be proper to take the land required for mining on lease, by paying appropriate yearly lease rent to the owner and return the full (or part) of the land back to the owner by proper reclamation. Such change in the modality of acquisition may help ease the matter.

The Coal Bearing Areas (Acquisition & Development) Act, 1957 that is in vogue for land acquisition for mining coal applies only to the central PSUs. In order to bring a level playing ground in coal mining across the country, this Act needs to be made applicable also to the private companies engaged in coal mining so that they too can acquire land through this Act. Therefore, the said Act may have to be amended accordingly to facilitate these two provisions.

Labour Reform
Having taken these steps, equally important is to bring in the suitable labour reform. Many labour laws in India are archaic, dating to the pre-independence period - creating an urgent need for an overhaul of the laws to attune them to present realities. There are multiple laws governing a single area. Tight labour market regulations have dissuaded foreign firms from investing in a large manufacturing and mining base in India. Present law requires that companies employing more than 100 workers should get government permission to fire a worker or close down a plant. Worker or trade unions can intervene company decisions and things could get into litigations for years. Such rigidity is a primary reason why manufacturing/production fails to take off in India. With the new government emphasizing on enhancing the manufacturing and export capabilities, the manufacturing / production sectors would need relaxation here through appropriate reforms. However, such labour reforms should be brought through only after a well thought over process/exercise and the revised laws should not only encourage  manufacturing/production interest in the plants/ mines etc, but also should have required provisions for the  protection of  workers interest, welfare, safety and their overall well being.

Governing Coal Sector
Finally, worldwide in developed countries, all the departments of natural resources are clubbed as one ministry. Therefore, it will be proper and beneficial to club all the ministries / departments of natural resources such as coal, mines (minerals) and oil/gas as one ministry in the Government of India. In case all these are found to be too many to merge, only oil and natural gas can be kept as a single entity and combine Coal and Mines together. Merging the Ministry of Power with that of Coal may lead to stepmotherly treatment to one another and may cause imbalance.
The Ministry of Natural Resources would be responsible to bring out the minerals and place them to the user ministries for utilisation.

5. Conclusion:
Mining involves digging of soil and going down to hundreds (sometimes thousands) of feet deep below the ground level. The annual growth in the mining sector in India has been varying from three to eight per cent. Any effort to have abnormal/unusual growth may bring environmental issues, besides causing safety hazards to men and material engaged in mines.

The purpose of this factual statement is to highlight that there is a limit to expect growth in the mining sector. The projections being worked to bring the country's coal production level to 1,000 MT by 2018/19 mean a required annual growth rate of 18 per cent has to be achieved. Lot is to be done to achieve this very high rate. Going by the country's projection for the growth rate of 8 per cent in GDP, it would be a good achievement if the coal sector grows annually by 12 per cent in a consistent manner.

This can be done by opening many large coal projects and make them operational in a shortest possible time. The aim should be to make the country self sufficient in coal. Opening the coal sector fully for commercial mining, to private investors to compete with CIL, is the key and answer for the country to accomplish self sufficiency in coal.

S.K. Chowdhary is the President of Indian Coal Forum and Former Chairman of Coal India.