The recent draft report of the Comptroller and Auditor General estimated a Rs 10.6 lakh crore loss to the exchequer on account of allotment of coal blocks without auction, during 2004 to 2009, to 100 private and public sector companies. It disrupted the proceedings of the Lok Sabha and the Rajya Sabha. The process followed by the government on handing over coal blocks to private sector power developers had been criticised earlier, especially by those with plans to sell generated electricity at market rates instead of regulated tariffs. In response, the Cabinet had in April 2008, approved the introduction of the Mines & Minerals (Development & Regulation) Amendment Bill, 2008, that suggested the auction of blocks for captive use. Presently, blocks are allocated to players by a government screening panel.
The Bill was moved in the Rajya Sabha on August 13 2010, then Mines Minister B K Handique, admitted that the system was “vulnerable to criticism on the ground of lack of transparency and objectivity”.
Problems arose when merchant power plants which sell electricity at market-determined rates were also included in this process. The additional profits from the availability of cheap coal would accrue solely to the project developer and the consumer was unlikely to benefit. The power ministry pressed for the diversion of coal to private merchant projects.
In the power sector, it is believed that NTPC and state-sector generating units, which supply power at regulated tariffs to customers deserves access to cheap coal. Furthermore, coal blocks have been allocated to non-serious players, many of which were behind the prescribed time-schedule.
The allocation process was unable to maximise value of the coal mines. Besides, blocks were mainly allocated to power generators that sell most of the power under long-term power purchase agreements to state government distribution companies through competitive bidding process where the lowest power tariff wins.
Hence, the existing policy can be improved by restricting coal allocation to power companies with long-term PPAs only and by auction of coal mines, which shall be a more transparent process. Also, auctions should be opened not just to actual users, but to mining companies, including foreign ones. This will make certain greater access to technology and sustainable mining practices, plus effectiveness and competitiveness of the coal mining industry. A few amendments may be required in the Coal Mines Nationalisation Act, 1973.
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