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Bidding for captive coal blocks no magic bullet

The memoirs of former coal secretary P C Parakh do illustrate the point that in the domain of policymaking, as in other areas, things seem to get better and worse at the same time in India. And to get out of the logjam in policymaking and purposefully address the rather misleading audit allegations of a massive, unprecedented scam, what is required is proactive policy that is properly institutionalised and sustained.

The next government clearly needs to bring about transparency in the allocation of coal blocks by repealing the thoroughly anachronistic Coal Mines (Nationalisation) Act, 1973, and more. It needs to chalk out a viable technology policy to boost a host of clean-coal power-generation technologies that would significantly reduce both energy costs and externalities like pollution. The fact of the matter is that our coal-fired power plants use up to 50% more fuel than the more thermally-efficient plants abroad. And, in tandem, what’s required is vision and a package of measures to diffuse and operationalise the clean-coal systems at the plant level.

Parakh’s observation that coal is not as glamorous as the petroleum sector but is far more important for the country’s energy security is quite apt.

Also unexceptionable is the view that the policy of captive mining of coal is perverse incentive for rigidities, diseconomies in mining, related opacity and other attendant overheads, which would all be at huge national costs. Hence the pressing need to roll back the public sector monopoly and open up the coal sector for commercial mining so as to step up investment, rev up productivity and reap economies of scale.

However, in tamely noting that “there was an undue financial gain of aboutRs 1.86 lakh crore to private parties” (page 111), Parakh seems to have even misconstrued the supposed finding of the Comptroller and Auditor General of India (CAG) in its audit report on allocation of coal blocks.

Note that the CAG coal report alleged that about Rs 1.86 lakh crore “is likely to accrue” to private coal block allottees, over a mining lease period that would stretch many years, even decades.

And that a “part of this financial gain would have accrued to the national exchequer” had the government speeded up competitive bidding for coal blocks (CAG Report 7 of 2012-13, para 4.3). But such a charge presumes massive upfront bidding and betrays lack of elementary knowledge of auction design or overall costs.

The point is that given our relatively large coal reserves, it makes eminent sense following bids to stagger payments of royalty, cess and other charges as per actual mining volumes and overburden removal.

A dispassionate analysis would show that only a tiny part of the Rs 1.86 lakh crore supposed gain could theoretically have flowed to the exchequer even without any delay in firming up competitive bids for coal blocks. More likely, not even that. After all, the instrument of competitive bids could nevertheless lead to delays, say, on environmental, forest clearance or land acquisition grounds.

In any case, auctioning captive blocks may well see limited bidder interest after taking into account logistics and transport costs. The fact remains that the vast majority of coal blocks identified in the past decade for captive investment has not seen followthrough action. Hence the vital need for holistic policy design, one that addresses policy uncertainty with clear-cut norms and transparency right across the board.

More importantly, the warped policy of nationalisation and cosy public sector monopoly is both incongruous and antediluvian. It needs to be junked. The CAG, in its highly exaggerated estimate of loss, almost certainly assumed status quo in policy, which is plain questionable.

The bidding norms notified in 2012 have many restrictions and loopholes. The book goes on to detail how the policy of competitive bidding for coal blocks was delayed, left in abeyance and effectively scuttled by vested interests and political patronage networks.

We clearly need part-sharing of revenue and royalty at the block and district level. What’s needed is innovative policy to better deal with the development challenge in mining areas. The bottom line is that absurd allegations of scam and undue financial gain simply divert attention and delay pressing policy action.

Source: The Economic Times