A small step forward

The Centre’s decision to e-auction 74 coal mines, which are already in production or close to it, is a step in the right direction. It provides some clarity after the Supreme Court last month cancelled all but 14 out of 218 blocks allotted between 1993 and 2012, throwing a pall of uncertainty over the fate of the blocks and the source of coal for plants in the power, steel and cement sectors. Armed with an ordinance, the Centre aims to complete the auction of these cancelled mines within four months, and thereby ensure the uninterrupted supply of coal. By allowing the States to pocket proceeds from the auction, it has provided the incentive for State governments to remove procedural hurdles and expedite coal mining.

The decision to auction mines in sector-specific pools provides some assurance about supplies to each; it will also help reduce unhealthy competition that could vastly increase the cost of production, particularly for power. Also, by fixing a base rate of ₹295 per tonne, the Government has ensured that premiums on mines that are not yet operational (37 of 74) stay low. At the same time, by denying companies the right of first refusal for cancelled licences, the Centre has thrown the auction open and protected itself from possible charges of bias. Also, the profitability of many companies will take a hit if they fail to buy back their captive mines. Though the Centre has announced compensation for the investment already made by the companies, it is unclear how this will be calculated. The Centre must use the next few days to clarify such doubts.

From a larger perspective though, the ordinance goes only a small way in attempting to grapple with a sector that is handicapped by its dependence on Coal India, the only commercial developer of coal in the country. While the ordinance contains an enabling clause, which gives it the right to open up the coal mining sector, it stops well short of making a clear plan for de-nationalisation. It is imperative that we attract companies, multinationals if necessary, with access to latest technology to exploit our reserves in a sustainable and cost-effective manner. It is unpardonable that India imported coal worth $16 billion last year, as it sat on the fifth largest reserves in the world. The problem lies with Coal India, which is incapable of meeting the growing demand. The state miner has failed to meet its own production targets and its coal has been found wanting in quality, leading to disputes with NTPC, its biggest customer. If the Centre uses the mess created by the earlier auctions to bring in genuine and sweeping reform in the sector, it would have made the best of a really bad situation.

COMMENT NOW