A murky sector

PM must take responsibility for the coal mess

The Comptroller and Auditor General’s (CAG’s) report on coal blocks highlights the Centre’s problematic delay in introducing transparent methods for the allocation of natural resources. While the report correctly critiques Coal India Limited’s inability to meet the targets for coal extraction, leading to the Centre’s decision to award captive mines to private producers in core infrastructure sectors like coal, cement and steel, more attention has unsurprisingly focused on the implications of this allocation. In particular, the minutes of the allocation meetings, the CAG report points out, show allotments “were made merely on the basis of recommendation from state governments and other administrative ministries without ensuring transparency and objectivity”. Thus, there is no way of knowing whether the coal blocks were assigned to those most capable of exploiting the resources efficiently, or as a result of cronyism and corruption. Criticism of the estimate of the loss of Rs 1.86 lakh crore, which the CAG claims captive mine policy caused to the exchequer, should not ignore this basic point. The worries about cronyism in this unreformed sector will be further stoked by the CAG’s report on the undue gains to the Sasan ultra mega power project as Reliance Power, which bagged that project, was being allowed to use its captive coal for purposes other than those for which it was assigned.

Of course, it does not need the CAG to point this out. Why has the United Progressive Alliance (UPA) been so slow to reform this crucial sector? It had an opportunity in 2006, when the law ministry suggested that an administrative notification was enough to introduce competitive bidding. The UPA, however, dragged its feet — the paperwork suggests that state power utilities, worried about their bottom line, were particularly reluctant to see the reform. The government has said that objections from some states, which would lose some discretion, also held up the move. In several other areas, however, the UPA has shown itself able to step on the states’ toes, yet in the matter of captive coal it clearly did not try hard enough. Nor is there a policy justification for avoiding competitive bidding here — given that output prices, at least for power, are supposed to be regulated, the price effect should not have served to dissuade the change. In effect, this is another political blow to the UPA that emerges from its own inability to take even administrative steps towards reform. The prime minister allowed his own instincts towards greater transparency to be overruled by lower-level functionaries, even though he was overseeing the portfolio himself for some of this time. It will only be believed that Manmohan Singh has learned the errors of that approach if he accepts primary responsibility for this mess.

Beyond getting lost in who else to blame – the coal ministry, the states that objected or power utilities – the question should be: how to move forward? The government made the mistake of choosing to wait until the governing Act was amended — which happened in September 2010. But not till earlier this year were the rules notified for competitive bidding. Clearly, all future allocations should be bid out. Meanwhile, production from the captive blocks has been well below potential. The government should re-examine past allocations and ensure that production does not suffer. Meanwhile, an independent regulator for the sector should ensure that windfall gains from allocations do not persist.