JOIN USThe government has acted fast to deal with the uncertainties and problems created by the Supreme Court judgement which cancelled all coal block allocations made between 1993 and 2010.
Since it had annulled all but four of 218 allocations and the order is to come into effect in March 2015, the government had to make arrangements to ensure that the mining and supply of coal is not disrupted. Supplies to power, cement and steel companies had become uncertain after the judgement. The government has decided to hold e-auctions to reallot the cancelled blocks and an ordinance is to be promulgated for this. It will facilitate direct allotment of mines to central and state PSUs and their captive use by end-user companies. E-auctions will make allotments transparent and lead to realisation of the best prices. It will put an end to the corruption and cronyism that marked coal field allocations for decades. It is also a welcome decision to pass on the proceeds from auctions to the states where the mines are located.
While e-auctioning is an efficient method to allot resources it will result in higher prices for coal because the acquisition costs are bound to be high. Some companies which are operating the mines at present have power, steel or cement plants. They will have no right of first refusal and will have to reacquire the mines through bidding. This will lead to higher costs which will translate into higher prices for consumers in these industries. But an increase in coal prices can be checked if there is greater production and supply.
India has large coal reserves but production is low and a good part of the requirements is imported. This is an undesirable situation. Coal India has a monopoly over production but it is an inefficient company which is unable to meet the nation’s demands. The government has given an assurance that in the new system, its interests will be protected. It should actually have gone further than what it is proposing to do and should have opened up the sector for private participation.
Only those companies which use coal will be allowed to bid for captive mining in the proposed scheme of allotment. But a cement or power company will lack the best expertise and experience required for efficient mining. A better option would have been to allow commercial mining by private companies. At present, only Coal India and Singareni Collieries can do this. The government has indicated that it may allow commercial mining by private companies in future but has given no time frame for this. This should be the next reform measure in the vital mining sector.