Govt goaded coal block firms: Start work or else

The threat is part of a series of strong-arm measures the coal ministry is drawing upon to make the miners produce the ore from their allocated blocks,belying the impression that they were as lucrative as has been made out.

Despite sitting on cash reserves,Coal India clearly had no plans to develop the blocks till the middle of the next decade,primarily because they were mostly in virgin forests or in Naxal territory,making them extremely difficult to mine.

The threat to invoke bank guarantees is a first of sorts for any sector in India which has been farmed out to the private sector to exploit the use of natural resources.

On December 6,2010,the ministry came up with its first set of draft mining plan for the 57 disputed coal blocks allocated in 2004-2006,which the owners had to fill up before they could even begin to build enclosures in the area. This came a year after a review by the ministry found that only two of the coal blocks (Sunflag and Electrosteel) had begun producing coal.

The latest review shows that 55 of the blocks,as Coal Minister Sriprakash Jaiswal noted on Wednesday,are still locked in clearances.

So,there were no profits adding up to Rs 1.86 lakh crore available for the miners as the state and central governments had chosen to keep the monopoly of the nationalised coal mines intact and sold a dummy to the private sector. Which is why despite the fact that these coal blocks were given free on allocation basis,following which coal prices have shot through the roof,few have invested in them so far.

Since they were yet to get clearances,the private firms could not hope to sell their licences to others. Coal mines need a host of clearances from state governments,such as forest,land,mining plan and lease and end-use plan,before they can put shovel on the ground. A review by the ministry found that mines allocated as early as in 1993 limped into production from 2008 onwards,after having obtained the many clearances.

Strangely,between 2002 to 2012,the auditor checked on trivial issues in the coal sector like foreign travel made by CIL bosses,its corporate social responsibility,but only once audited a substantial issue of transportation losses at Eastern Coal Fields — a subsidiary of CIL which became sick in 2001 as it lost more money for each tonne of coal it extracted.

Between 1993 and 2003,the government allocated 40 coal blocks of which 23 began production only by 2009. A wait of five years was the average norm for a mine to come into production till 2008-09.

As the enormity of the difficulties sunk in,like transportation cost which is about 14 per cent of the total variable cost of running such a project,larger companies like Essar Power,JSPL and Tata Power,which had bid for the mines and got stuck in clearances including go-no go environmental concerns,found two alternatives — setting up ultra mega power projects with accompanying captive mines and promoting coastal projects based in imported coal.

As Rajiv Kumar,secretary general,FICCI explained,the bottom dropped out of the allocated coal block projects since they realised the pool of buyers had shrunk heavily. All this while uninvested cash balance with CIL has risen close to Rs 56,000 crore as on March 31,2012,more than a quarter of the illusory gains to the sector.