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India: Govt ordinance to open up coal sector to private miners, enable e-auctions

In keeping with its momentum of announ-cing key policy decisions, the government on Monday said it would promulgate an ordinance to resolve issues arising out of the cancellation of coal blocks. The ordinance will address issues related to coal supply to companies of central and state governments, as well as private companies in the cement, steel and power businesses. It will also address valuation of the land to be taken over from those who have lost coal blocks.
The coal sector has seen a logjam after the Supreme Court, on September 24, ordered the allocation of 204 blocks be cancelled. Though the order had put a question mark on the National Democratic Alliance government’s plan to introduce commercial mining to bring about efficiency and use of better technology, Finance Minister Arun Jaitley said an enabling provision would be made later to introduce commercial mining. Unlike the current system, in which coal mining rights are allotted to actual users in some notified sectors, commercial mining will mean opening up the sector to mining companies selling coal to users.
Introduction of commercial mining will require changes in the Coal Mining Nationalisation Act, 1973. “Rules will be framed for commercial mining, under which the government could also decide commercial miners. We want optimal utilisation of resources and reduction in the amount of imports,” Jaitley said at a media briefing after a meeting of the Cabinet on Monday.
For state-owned companies such as NTPC, as well as state electricity boards, coal mines will be allocated on a need basis. “The government will create a pool of sufficient and adequate number of mines for auction, through a transparent e-auction process for the private sector,” Jaitley said.
Mines will be allotted based on the per-tonne requirement of coal. Quashing any idea of de-nationalisation of the coal sector, the finance minister said the structure of Coal India would remain unchanged.
The land on which the de-allocated mines are located will be transferred to the final allocatee, with the price decided by a “competent authority” during the course of e-auction. “Though the decision paves the way for utilisation of the mines effectively, what remains to be understood is how investments made by earlier allottees and banks will be addressed, given no right of first refusal is proposed for these allottees,” said Kalpana Jain, senior director, Deloitte.
LIGHT AT THE END OF THE TUNNEL
• Commencement of re-allocation of cancelled coal blocks
• In the sate sector, NTPC and state electricity boards to be allocated mines
• Private sector to bid through transparent e-auction route
• A pool of coal blocks for end users in power, cement and steel sectors
• 42 operational blocks and 32 in different stages of production to be put up in first phase of auctions
• Price of land to be determined by authority during course of auction
FIRMS THAT WERE HIT BY THE SC RULING, BUT MIGHT NOW ENTER VIA E-AUCTIONS
• Jindal Steel & Power
• Adani Power
• Monnet Ispat & Energy
• Hindalco
• JSW Steel
• Tata Power
• Essar Steel
• Prakash Industries
• Surana Industries
Piyush Goyal, minister of state for coal, power and renewable energy, said private players would bid for the coal blocks at a reserve price, which would be decided by the authority overlooking the proceedings. “Also, there will be separate sectoral auctions for the power sector, which is in want of coal.”
To kick-start the process, the 42 operational cancelled mines, along with 32 mines in different stages of production, will be put up for e-auction for actual users in the power, cement and steel sector. The e-auction process, the government hopes, will be completed in the next three-four months. The proceeds of all the auctions will go to the governments of states in which the mines are located. The major beneficiaries will be mineral-rich Jharkhand, Odisha, West Bengal and Chhattisgarh.
THE STORY SO FAR
Jun ’93: Coal Mines (Nationalisation) Amendment Act to allow captive coal mining passed
1993 to 2009: Govt allocates 201 blocks to private, public sector firms for captive use
Aug 17, ’12: CAG says govt extended undue gains to firms by not auctioning 57 blocks allocated between 2006 and 2011
Aug 27, ’12: PM tells Parliament CAG’s assessment of Rs 1.86-lakh-crore loss to exchequer due to allocation not justified
Sep ’12: CBI begins questioning in the alleged coal scam after CVC forwards complaints; raids are conducted, FIRs filed
Jun ’13: FIR filed against JSPL Chairman Naveen Jindal; former minister Dasari Narayan Rao also named an accused
Oct ’13: FIR filed against industrialist Kumar Mangalam Birla and ex-coal secretary P C Parakh for alleged criminal conspiracy and abuse of official position
Aug ’14: SC terms allocations made between 1993 and 2010 illegal
Sep ’14: SC cancels 214 block allocations, directs CIL to take over these mines
Oct ’14: Govt says it will promulgate ordinance to resolve issues related to Supreme Court’s order de-allocating coal blocks
Jaitley said through domestic substitution, the coal import bill was likely to fall; last year, this had touched $20 billion. “The biggest beneficiary from the revenue generated will be the states which will be financially empowered; lakhs of labourers will get employment and bank capital will now be utilised,” said Jaitley.
Jindal Steel & Power, one of the worst affected due to the Supreme Court de-allocation order, had earlier said it would bid for coal mines once these were auctioned Of a total of nine mines, it has three operating mines in Chhattisgarh, with about 12 million tonnes of annual capacity, and six blocks that are yet to start production. One of these, a coal-to-liquid project, had been de-allocated by the government, though the cancellation has been challenged by the company. Hindalco, Monnet Ispat and Usha Martin among the others that will see the government take over their mines.
The Supreme Court had also asked the private companies producing coal to pay a penalty of Rs 295 a tonne on the entire production so far. This amounts to about Rs 7,600 crore. Goyal said any company convicted by the court would be barred from taking apart in the auctioning process, though Jaitley clarified mere levy of charges would not attract debarment.
Source: Business Standard