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The coal mining quagmire

Controversies of India’s mining sector have claimed one of its first international victims

Last week, National Thermal Power Corporation (NTPC) – India’s largest power producer - cancelled a contract with one of Australia’s largest builders – Leighton Holdings. The company’s Indian subsidy Thiess Minecs was awarded the contract to develop the Pakri Barwadih coal mine in Jharkhand for NTPC. But according to NTPC,  the developers failed to do so in a timely manner. The Australians have announced that they will take legal recourse as this is an untimely termination of a contract and NTPC has already claimed $18.5 million worth of bank guarantees issued by Thiess Minecs.
 
It is a familiar tale by now in India, where illegal mining has cost crores to the exchequer, severely hampering production and growth rate with court bans and litigation. Miners are unable to meet deadlines due to unwillingness on their part, protests by locals over land acquisition or environmental clearances, official action on violation of laws etc. The cycle seems never ending. Whether the authorities are to blame for lax policies, improper implementation of laws or private players for their violations – is a debate for another time.
 
In this particular case there are allegations and counter allegations which will have a far reaching impact, especially on efforts to revive the sector. The termination of this contract seems to be heavily influenced by the union government’s decision to permit mine development by the owners who have been allocated mines on the end-user basis. This, along with the ongoing discussions on allowing private players to sell extra coal in the market, suggests that many project proponents would rather not share the bounty.
 
Unfortunately this spells doom for the already ailing coal mining sector. In an attempt to revive investor interest, the ministry of coal last year announced various amendments and rules. One of the important moves was to introduce sub-contracts on models like MDO (mine developer cum operator) and JVs (joint ventures) etc of coal mines. This was aimed at increasing private sector involvement and bringing in the much needed investments.

But the current cancellation is going to lead to hesitation from international firms wanting to invest in India.   
 
NTPC had sub contracted the development of this project estimated to be worth $267 million, a statement from Leighton says. But NTPC is confident of its actions and a spokesperson informed BW that, “The contract ended in 2012 and we extended it twice,” and the task was still not complete.
 
Countering NTPC claims, the Australian builders have claimed that India’s biggest power producer is seeking to develop its own mines while violent protests go on at Pakri Barwadih – estimated to have 300 MT of coal. Illegal mining by villagers demanding more compensation for their land has also delayed the mine’s opening.
 
 
BOX: The stars do not seem to be favouring the Australian developers. Within a day of the contract cancellation, the CEO of Thiess Minec was arrested in Hyderabad. The company has claimed it is not on a related matter and the arrest is in connection by a civil suit filed in Singapore by another developer – Roshni Developers. But court documents suggest that Thiesss had discussed sub contracting the removal of soil from the Pakri Barwadih coal mine site with Roshni Developers. When contacted, the company refused to comment on the possible connection of the arrest and coal mine in question.  

Source: BusinessWorld