After bold estimates, coal auctions, allotments get Rs 56.84 bn in 3.5 yrs

So far, 58 coal blocks have been allotted to PSUs and 31 auctioned

In March 2015 the Union government said through a press release, "India has hit a gold mine with the recently concluded auction of 29 coal mines in two phases. The public exchequer continues to swell on revenue from coal block auctions. The total proceeds from the coal mines auctions have crossed Rs 1.93 trillion surpassing CAG's estimate of Rs 1.86 trillion losses on account of allocation of 206 captive coal blocks without auction since 1993." 

It estimated that revenue of Rs 3.35 trillion would likely flow to states through coal mines e-auctions and allotments. By then, 67 coal mines had been auctioned and allotted. 

Prime Minister Narendra Modi was quoted in the same press release saying, "Fetching of over Rs 2 trillion from auction of just 33 coal blocks has shown that policy-driven governance can rid the system of corruption."

The press release added that these revenues would flow over a 30-year period while mining takes place. 

In contrast with these statements, three and a half years after the NDA government passed the Coal Mines Special Provisions Act to auction and allocate the cancelled mines, the government has collected and passed on to states Rs 56.84 billion for the period of February 2016-July 2018. These are the proceeds from the auction of 31 and allotment of 58 coal blocks. This revenue is in addition to royalties that the states have always collected from coal mining. 

The backstory

The Supreme Court cancelled the allotment of 204 coal blocks to the private sector by the previous governments, stating that it was done arbitrarily and illegally. By the time the judgement came in August 2014, the NDA government was in place. It moved swiftly to enact a law to deal specifically with the 204 cancelled coal blocks -- The Coal Mines (Special Provisions) Act 2015. The law provided for both -- auction and allocation of the coal blocks. Rules were set for both routes. The government could decide which blocks to auction and which to allocate. The auctionable coal blocks were opened to power producers and others for specific end-use through the bidding route. The new law also allowed the government to allot coal blocks to government companies owned by both states and the Centre. The allotment was to be done on the basis of specifically laid down criteria -- unlike in the past when the Supreme Court had held it to be done arbitrarily. The rules put down criteria such as the applicant public sector company's technical capability to mine and the need for coal in the state.

Under this law, through auctions carried out since February 2015, the Union government offered 65 mines to companies for captive use. Some of these mines were put on the auction block repeatedly as auctions failed. Of the 31 coal blocks that finally got auctioned, six stand cancelled for failing to deliver against set deadlines. Through the allocation route, the government has by now allotted 58 coal blocks to public sector companies. 

Meeting expectations?

How does the flow of revenues from the auctions and allotments stack up against earlier statements of the government?

The headline statements aside, the details in government releases and bid documents later showed that the revenues were to flow over a 30-year period for which the mine was leased through either auctions or allotments. 

For the auctioned mines, companies had to pay a pre-fixed upfront sum and a regular annual payout would go based on the volume of coal extracted as per mining plan. This upfront payment was set at 10 per cent of the 'intrinsic' value of the mine. The intrinsic value was calculated by discounting the net of revenue generated over 30 years at a Coal India-notified price for the particular grade of coal and the cost associated with excavating ore from similar mines. The intrinsic value of each mine has not been disclosed by the government. 

The mines allotted to public sector units were not done on the basis of the highest bidder but on other technical considerations. 

The government had in 2015 estimated that 67 mines auctioned and allotted by then would earn a potential Rs 3.35 trillion. Theoretically, on average, that would mean Rs 112 billion of revenue annually for the states. The specific amount for each year would vary based on the committed upfront payment coupled with different mining plans. But production for these auctioned mines was to start from 2015-16. The average revenue from the operation of the 67 mines over two years would be Rs 224 billion.  

The government has not put out the 'potential revenue' the 83 mines auctioned and allocated by August 2018 could generate if they were working to meet their approved mine plans. 

Data provided by the ministry of coal in August shows that for the period from February 2015 to July 2018, Chhattisgarh has received the maximum a state got (Rs 21.95 billion) and Telangana the least (Rs 440 million).

Out of the total Rs 56.83 billion collected by states, Rs 33.53 billion has come from auctions and rest from the allocated coal blocks. 

The government had also claimed that just the first two rounds of auction (of 29 coal blocks) would see power rates coming down by Rs 693 billion. These rate cuts would be offered (to consumers) by companies bagging coal blocks reserved for the power sector.  

But the government or its agencies have not put out any assessment of how the benefits of cheaper coal to the power sector have been passed to the consumers through lower electricity tariffs.

  

A report of the Parliamentary standing committee on Coal and Steel in August 2018 noted that the production from these captive mines had not taken off as promised. "Since allocation of coal mines under provisions of the CMSP Act and Rules made there under, a total of 45.28 MT coal has been produced till April' 2018." The committee noted several reasons for the below expectation revenues -- "preparation of revised mining plans for obtaining statutory clearances, modification of geographical boundaries given in the allotment letter, land acquisition, transfer and approval of mining lease and lease transfer from previous allottees". The government replied to the committee that much was being done to improve the situation, including setting up a high-power expert committee to revise the criteria and method by which coal blocks are auctioned in the future.