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Centre gains leverage with coal auction windfall for states

Six coal-rich states are set to reap a bonanza from coal-field auctions in the form of upfront payments, revenue and royalty, the promise of which may have spurred the ruling parties of Odisha and West Bengal to break ranks with the opposition and support the coal mines bill passed by Parliament last week. At stake is the Rs.2.097 trillion in bids received for 33 blocks from two rounds of auctions, which will accrue to the states. While the Biju Janata Dal (BJD)-governed Odisha will get Rs.33,741.94 crore over the life- time of these blocks, the Trinamool Congress (TMC)-led West Bengal will get Rs.13,354.23 crore. Other states such as Madhya Pradesh, Maharashtra, Jharkhand and Chhattisgarh will get Rs.42,811.44 crore, Rs.2,738.53 crore, Rs.49,272.92 crore and Rs.67,821.18 crore, respectively. All four are ruled by the Bharatiya Janata Party, which leads the National Democratic Alliance (NDA) that’s in power at the centre. Odisha and West Bengal will also get an upfront payment of Rs.273.89 crore and Rs.143.37 crore, respectively, from these schedule II (operational) and schedule III mines (ready to be mined).

The crucial Coal Mines (Special Provisions) Bill, 2015, won Parliament’s approval on 21 March when the Rajya Sabha, where the NDA is in a minority, passed the legislation. The finances of coal-bearing states are expected to improve thanks to the passage of the bill. More money may accrue from a possible auction of coal linkages through which projects get assured supply of the fuel at a discounted price. The government is to take a call on this shortly.

“In the entire exercise, the central government is getting nothing. This is a very unusual exercise where the central government has worked hard, its officers have worked hard to see that the money flows to the states,” said coal secretary Anil Swarup. “It is a very unusual thing. It normally doesn’t happen. There are e-auction proceeds, royalty proceeds and upfront payment,” said Swarup, adding that this was in the spirit of co-operative federalism. A total of Rs.3.35 trillion will accrue to the states from 66 blocks, which are being awarded through a mix of auctions and allotments to the state-owned public sector firms, leaving another 138 blocks to be allotted in the next fiscal year, which will add to the proceeds. Additionally, electricity tariff benefits totalling Rs.69,311 crore will accrue to the state distribution companies. The Narendra Modi government has been espousing the narrative of cooperative federalism and decentralization to the states. The 14th Finance Commission also proposed a major overhaul of grant allocation to states. “I have personally travelled to each of these coal-bearing states. I had detailed discussions with the chief ministers in some places. Certainly with the chief secretaries and all senior officials,” said Swarup. “There has been a very intensive interaction with the states not only to resolve issues, but also to convey the value proposition.” The coal auctions are to end the uncertainty that arose in September when the Supreme Court cancelled 204 coal-mining permits awarded to companies, terming their allotment arbitrary and illegal. The government aims to auction or allot 110 coal mines. Of these, 65 are to be auctioned and 45 allotted to state-owned firms in a process to be completed before the end of the current fiscal year that ends on 31 March. Piyush Goyal, minister for coal, power and new and renewable energy, said the coal mines bill will help in the development of the mineral-rich eastern parts of the country. Analysts welcomed the approach taken by the government. “We would expect mineral-rich states such as Jharkhand, Chhattisgarh, Odisha, West Bengal and Madhya Pradesh to benefit most from the proceeds of coal auctions,” Barclays Equity Research wrote in a 13 March report. “These states currently have modest infrastructure levels in comparison to the rest of the country in terms of roads, railways and public amenities. We estimate that a larger part of these states’ incremental revenue is spent on material-related sectors which, in turn, could provide a boost to materials demand (steel and cement),” the report said. The NDA managed to get three key bills passed in the first half of the budget session—the mines and minerals bill and the coal mines bill, which allow the auction of these natural resources, and the insurance bill, which raised the foreign investment cap in insurance ventures from 26% to 49%. Passage was secured after the NDA won over the Samajwadi Party (SP), the Bahujan Samaj Party (BSP), the Trinamool Congress and the Nationalist Congress Party (NCP). On the last day of the first half of the budget session, the coal bill was passed with 107 votes in favour and only 62 against. Higher revenue to the states may also help to contain the Maoist armed insurgency, which is particularly strong in Jharkhand, Chhattisgarh, Andhra Pradesh, Madhya Pradesh, Bihar, Odisha, West Bengal and Maharashtra. “My understanding of the Naxal issue is that as development happens in the area and people get more and more employed, the incidents of Naxalism will come down. As you have more and more development, extremism takes a beating,” Swarup said.

source: http://www.livemint.com