Latest rules on coal auctions allow only govt mining firms panel had wanted others to also participate, as long as end-users were notified
The ongoing controversy over coal blocks has led the government to hasten efforts to introduce auctioning for future allocations but the framework devised for bidding has ignored a crucial suggestion by the Chawla committee that could prevent eruption of a similar scam in future. This is despite the panel’s clarification that there is no legal bar disallowing implementation of the suggestion.
Ashok Chawla, former finance secretary and now head of the Competition Commission, had chaired a panel on allocation of natural resources. In its report in May last year, it had recommended allowing independent mining companies to participate in the bidding for captive blocks, provided their end-user companies were suitably notified. However, the ministry’s rules for competitive bidding, notified in February this year, has allowed only government-owned mining companies to participate in auctions.
The logic behind the Chawla recommendation was that increasing the coal supply in the market was essential for transparent allocations but the current mechanisms of allocation – captive mining and e-auction – were not sufficient to meet this goal. It said a method to increase supply would be to allow existing allottees of captive mines to sell to other approved end-users but noted this would generate windfall gains, apart from being legally tenuous.
“Another method would be to include mining companies in the allocation process for captive blocks, to expedite the development process,” the committee had said. A series of opinions from the Attorney General (AG) have settled the issue on whether mining companies could be allocated blocks for sale to identified end-users.
The AG had opined in 1995 that the company mining coal could be different from the end-user one, as long as the entire production was used by the latter. No association was required between the mining company and the end-user. While the coal ministry’s policy on captive mining had earlier required that the end-user company had at least a 26 per cent equity stake in a mining venture, the AG had opined in 2006 that it was not necessary for the end-use company to hold any equity in the mining venture. The Chawla committee report had said, quoting the AG’s opinion, “There is no legal bar in granting a coal block to an independent mining company, on the condition of issuing a notification under the Coal Mines Nationalisation Act that the entire mined coal would be transferred to the end-use company for specified end-use.”
The primary difficulty in allowing independent mining firms excavate coal is that in case such coal finds its way in the open market, rather than channelised entirely to the end-use company, it would be a gross violation of the CMN Act and lead to undue financial gains. Besides, mining, being a high-risk venture, is best carried out by a dedicated and independent mining company with expertise in the area.
“The entire problem is that a lot of such companies have been allocated blocks which have neither the experience nor the intent to develop the reserves. So, the Chawla committee’s recommendation is an intelligent one,” said a senior analyst from a consultancy firm.
He, however, added that only opening captive mining for independent miners might not be enough and the government needed to ensure proper examination of a company’s credentials while allocating blocks. Else, the same scam could occur again.
The Chawla panel’s recommendations were reviewed in a meeting chaired by Prime Minister Manmohan Singh in May and it was decided that all the 69 agreed recommendations would be pursued by individual ministries in a time-bound manner.
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