Before 1973, coal production was only undertaken by the state
and later on private and
public sector companies were allocated captive blocks to mine only
for their end use. A lot of zeros have been seen in the CAG reports and raise a
lot of questions about what’s really happening in India’s coal sector. As
intriguing as it gets, its not a simple problem. Following I provide two key
points that came to my mind after reading the reports.
Currently captive coal mines-the private companies have to
give royalty to the government for the coal that they use for the end use. The
price of coal is bench marked against the price that CIL chargeswhich is
heavily subsidized giving an undue advantage to coal companies. For example if
the price of coal that is provided by CIL is Rs 10 which is lower than the
price in the international market that is Rs. 13, then in that case the private
players are getting coal at a cheaper rate that is subsidized by the
government. Now the basis of calculating losses by the CAG is that it has
taken this into account and affirmed that the private players had to pay less in
royalty because of the subsidized price provided by CIL. Now the question comes
down to should the government provide the price the coal at a cheaper rate to
sustain growth.
Similarly, according to the CAG report all Coal should have been
auctioned and by not doing this has resulted in a huge loss to the exchequer.
What it essentially fails to recognize is that unlike other resources such as
telecom allocations, coal has a direct link with the growth of the economy. It
is one of the key infrastructural ingredient to ensure that growth is not
comprised. Had the coal been auctioned the price of coal would have become
inexorably high which could have had a negative impact on growth through high
cost of infrastructure projects. It further suggests that Coal should be
auctioned that would lead to an efficient allocation. One of the reasons the
government cites as it should not be considered a loss is because
The Ministry of Coal has allocated captive mines to bulk users of coal, in
public and private sectors. However auctioning of the block to
the highest bidder may not be economically viable and adversely affect the
ultimate consumer.Hence again the argument is that the government considers
coal to be a catalyst in fueling growth and hence wants to keep the price of
coal fairly nominal so that it could be used affordably by private players and
does not preclude growth.
This process of allocating captive mines has also not
increased production for a variety of reasons. Around 144 captive mines were
allotted and in only 45 of them mining is carried out. Mostly this happens
because it takes a great amount of time to get clearances from state
government and environment department. Environment clearance alone has stalled
production in many of the captive mines. This is where the government needs to
bring in reforms and policy changes to ensure that the coal production is not
comprised. One measure is to ensure that
there is single window clearance mechanism to ensure that the private companies
do not take years in getting license. Apparently the company gets the license
for a captive mine from the centre but also has to get a clearance from the
State government. This multiple levels of clearances lead to opaqueness in the
process of allocation and give rooms for corruption. The efforts of the
government should be to make it a transparent process so that coal production
is done in the most efficient way possible. Similarly The Environment and The
Coal Ministry must work in coordination so that only those coal blocks are auctioned/allotted
that will get environmental clearance or have a possibility to get an
environment clearance. This eventually brings us to the question whether
bidding is the only option left for the government. As mentioned above that the
effort of the government should be to not let the price of coal escalate.
Allocating coal to the highest bidder will only fill in the coffers of the
government but not ensure a cataclysmic effect on growth. Hence it is important
to develop a system of allocation in which coal is allotted to the user who will produce
coal in the most effective way and with the least cost. Efficiency in the
production of coal should become a key point in making this decision. The approach suggested by P.S Bhattacharya seems quite effective
in countering the present challenges. He suggests to allocate mines to those companies which have the highest
present discounted value of the future cash flow that is to seek year-wise binding commitment of royalty payments and
discount to arrive at the present value (PV) which should be the bid parameter. Hence the
bidder would want to maximize coal production in this which is the essential
purpose. Across the board auctions are not an answer to our problems. It will
be a retrograde in policy making and a short term measure to restore the
government's budget.
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