Business Standard published an article recently, authored by Nitin Sethi, titled ‘NDA’s coal block policy and new regulations face critical questions’ where it was insinuated that private entities gained more from the central government’s coal policy and consumers and state governments suffered as a consequence. It was also insinuated that the private sector gained more from the ‘back door’.
The author appears to have put great faith in the newly elected Chief Minister of Chhattisgarh from the Congress party for the letter penned by the latter in which Baghel claimed that the Centre’s policy could cause a potential revenue loss of about Rs. 9 trillion over the life of the coal blocks in its territory.
The author has also put great faith in a PIL filed by one Dinesh Kumar Soni the matter of which is still being heard by the Court. A source in the Coal Ministry spoke to OpIndia.com regarding the matter and called the report ‘baseless’, ‘erroneous’, ‘full of falsehoods’ and ‘a collection of blatant misrepresentations’.
The article mentions Baghel asserting that the state governments under whose jurisdiction the coal blocks fell should have the right of first refusal and have a say in the allocation of blocks to other states. The Chhattisgarh CM has also demanded that the reserved price for such blocks be increased from Rs. 100/tonne to at least Rs. 500/tonne.
Responding to these demands, the Ministry Source told OpIndia.com that the allocation criteria include the distance of end-use plant from the mine to encourage efficiency and economies through pit head generation. That is, one of the criteria for the allocation of coal blocks is the distance between the mine and the thermal power plant where the coal produced from it will be put to use. Therefore, the coal-bearing States will always benefit if any PSUs apply for a coal mine.
“In fact, out of the 10 coal mines that have been allotted in the State of Chhattisgarh, PSUs of Chhattisgarh state had applied for only 4 coal mines. Accordingly, they were allotted 3 (Extractable Reserves of 392 MT) out of the 4 coal mines for which they submitted applications. The transparent auctions and allotments have resulted in revenue of Rs 2,867 crore to Chhattisgarh compared to zero amount under the previous policy. In addition, they will also collect royalty and District Mineral Funds (DMF) from coal mined,” the source said.
As for the demand to raise the reserve price, we were told, “The demand for raising the reserve price from Rs 100 MT to Rs 500 MT is not tenable. The increase in reserve price will lead to increased electricity tariffs for consumers across the country especially farmers, the poor and middle class. It would affect the ability of State Governments to provide affordable and regular electricity across the country.”
Basically, raising the reserve price will increase the cost of electricity production. Consequently, the cost of electricity will go up for consumers and the electricity bills of customers will increase.
The article also makes the claim that “Mining companies see huge potential from the MDO route.” It also makes the assertion that the MDO business could corner 52 billion tonnes of coal reserves. In reality, under the new regulatory framework established by the NDA government, PSUs are permitted to appoint a Mine Development Operator (MDO) through a competitive bidding process in a free and transparent manner providing a fair opportunity to all. At the end of it all, the PSU still continues to be the mining leaseholder and the coal produced is entirely the property of the PSU. Therefore, it appears misguided to make the claim that MDO business could corner ’52 billion tonnes of coal reserves’.
Baghel’s primary disagreement appears to be with the government’s decision to allocate coal blocks to PSUs. The article states, “Though the initial focus was on auctions, the government has ended up with more allocated blocks (58) than auctioned ones (31). It is this allocation policy that Baghel has questioned.”
The Ministry source told us that the primary reason for this was the low response from bidders in auctions. Two rounds of auctions have apparently been cancelled due to low response. “Had the mines not been put up for allotment, there would have been a loss of revenue to Chhattisgarh State because there were few takers from the auction process. By allotting these mines to PSUs, Central Government has ensured production of coal, which has led to royalty and DMF earnings for Chhattisgarh,” the source said.
We were also told that the production of coal from allotted mines is actually higher than the production of coal from auctioned mines. And these mines are providing the local populace with plenty of economic opportunities and also assisting in the development of the area.
The same author had published a sensationalist story last year on the same issue. We had published a detailed report back then debunking the claims that were made in the said piece.