Govt threatens to pull the plug on 58 companies' unused coal blocks

Amid the controversy over the process to allocate coal blocks for companies’ captive use, the government is now going the whole hog to take away coal acreages from companies sitting on reserves. Just a few days before a leaked CAG report made the headlines, the coal ministry had started serving notices threatening cancellation of allocation to 58 companies.

These blocks were allocated between 1996 and 2009 through a screening committee route, and not auctioned. The action is being taken on the recommendations of a review committee headed by Zohra Chatterjee, additional secretary in the ministry. The committee, in a two-day meeting in January, had recommended serving show-cause notices to these companies, asking them to explain why the allocation should not be cancelled when the progress was unsatisfactory. The companies included ArcelorMittal, GVK, Aditya Birla Group’s Hindalco, Tata Power, Reliance Power, Monnet Ispat & Energy, Jindal Steel and Power (JSPL), JSW Steel, Nalco and MMTC Ltd.

A senior ministry official told Business Standard, “We have initiated the process of serving show-cause notices for cancelling allocations for delayed development. Some of these notices have already been issued. Overall, 58 companies will be issued notices by the end of next week.”

India faces chronic coal shortage, as the annual domestic production of 530 million tonne (MT) falls short of the demand by over 80 MT, which is met through imports. To end state monopoly in coal mining and ramp up production, the government allocated 206 blocks between 1993 and 2009, with reserves of 35,000 MT, mostly to private companies for captive use.

The current controversy stems from the allegation that the government allowed companies “windfall gains” by allocating these coal reserves virtually free of cost. The Comptroller and Auditor General (CAG) has allegedly pegged the government loss estimate at a whopping Rs 10.6 lakh crore, though in a letter to the Prime Minister yesterday it admitted to a “change in thinking” over how to compute loss to the exchequer.

The government maintains subsidised allocation was meant to keep output prices in power, steel and cement sectors under check. This, however, disincentivised timely production and led to the current coal crunch, critics argue. The target for production from captive mines has already been lowered from 51 MT to 36 MT by March 2012.

The coal ministry’s current captive block review is the second phase of the stock-taking exercise by the government. In the first phase initiated last year, the ministry had issued similar notices to 84 companies.Later, allocations of 14 coal blocks and one lignite block were cancelled as companies failed to justify delays. Six state-owned companies, including Maharatna power generator NTPC Ltd, had to face the government’s ire then. However, three of NTPC’s blocks were later returned. Overall, 25 block allocations stood cancelled as of December 31, 2011.