A K Bhattacharya: Mine over matter

The Narendra Modi government's coal Ordinance is a bold move, but it may not be able to tackle the central problem of minimising the loss of coal production

By all accounts, the coal Ordinance that the Narendra Modi government promulgated last week has paved the way for an eventual opening up of commercial coal mining by the private sector. This decision is bold as well as ambitious and the government is being justifiably complimented for its reformist zeal and initiatives.

But has the coal Ordinance succeeded in resolving the primary problem that arose out of the Supreme Court order cancelling the allocation of over 200 coal mines? Not really. Indeed, with the gradual ebbing away of the initial euphoria over the lightning speed at which the government acted on the matter, experts and even some civil servants in infrastructure ministries are coming round to the view that the Ordinance may not be able to address all the problems that arose out of the cancellation of the mines.

The central problem that the Ordinance was expected to tackle was to eliminate or substantially minimise the loss of coal production estimated at over 50 million tonnes in the wake of the cancellation order. Nobody is faulting the process of e-auctioning the cancelled coal mines as mandated by the Ordinance. The problem, however, stems from the acquisition of land and other infrastructure around the mines to be e-auctioned. Will these be allowed to be acquired without the long delays that are usually associated with such a process? As coal miners point out, the problem in mining is not with the actual process of excavation, but with the acquisition of land necessary for evacuation of the mined coal.

Two, how costly will it be for the existing owners of the cancelled mines to secure them through the e-auction process? If a company has a mine linked to a power plant or a cement project, its need to acquire that mine is paramount. In an open e-auction process, this situation can be easily exploited by rivals to make non-serious bids in an attempt to jack up the cost of acquisition. Such instances are not entirely unknown in the auctions that have so far been held in other areas. There is no reason one will not see the repeat of such attempts.

Three, will the e-auction process lead to an optimum utilisation of the country's vast coal assets? This is, of course, a larger question and strikes at the root of the policy on end-use based captive mining of coal blocks. Given the many varieties of coal found in this country - ranging from those with a high calorific value to those with high ash content and a low calorific value - the idea of linking a coal block to a pre-determined project does not always lead to optimum use of coal. It is possible that a coal block, linked to a power project, produces high-quality coal that should ideally be used for a steel plant to achieve optimum results. But with end-use restrictions in place, such diversion would not be permissible. In other words, top-grade coal would be used in a project that does not need that level of fuel quality and could well have met its needs with lower grade coal. The e-auction process may improve transparency in awarding mining blocks, but it will fail to address the basic problem of sub-optimal use of a valuable natural resource like coal.

Could the government have done something better? Some officials point out that the government could have acquired the mines and then e-auctioned them to firms whose primary job would be to mine coal under the supervision of an effective regulator that also should be set up simultaneously. Land acquisition delays would have been obviated in the process because the government would have taken far less time in acquiring them. And then the coal produced by such firms could either be sold or made available through linkages to projects depending on the quality of coal produced there. Even Coal India now tries to ramp up production by using private contractors to do the actual mining. The same principle could have been applied by the government and instead of relying on Coal India, there would have been many private contracting firms mining coal until such time the government chose to allow through a notification private commercial mining of coal.

But then such ideas cannot get discussed when decisions are taken without following a more broad-based consultative process. Quick decisions are welcome, but some more consultation with experts and even think tanks within and outside the government can certainly help.