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Success of coal mine auctions rests on power sector reforms

A significant decision that the government led by Prime Minister Narendra Modi took early this year was to order coal mine auctions to remove the bottlenecks coming in the way of coal production in the country. The auctions were also aimed at freeing the sector from a production logjam caused by a damning report of the Comptroller and Auditor General of India that had rightly questioned the discretionary methods followed in allocating coal mines. The problem had got worse after the matter was studied by the Supreme Court and it declared all such allocations illegal. The government's speed of action in approving a scheme for coal mine auctions, therefore, was laudable. In subsequent months, as many as 67 coal mines were auctioned. However, only seven of these have begun production so far, giving the lie to the earlier expectation that coal auctions alone would be a panacea for stalled coal projects. This is a cause for serious concern.

No less disappointing will this be for a large number of state governments, whose revenues from such auctions have so far been estimated at only Rs 1,230 crore. This amount is deplorably small compared with the government's expectation that the decision on coal mine auctions would result in potential revenues of Rs 3.35 lakh crore for the states over the life of the mines. Even after assuming that the average life of each of these mines is 30 years, the annual revenues should have been around Rs 11,100 crore, according to a report in this newspaper. If the actual revenues are about a 10th of what they ought to have been, it is because even after the roll-out of the mine auction plan several procedures have not been sorted out by various governments in states, where the mines are located. Issues such as application of stamp duty for execution of mining lease, valuation of land for mutation and delays in recovery of dues from successful bidders have not been resolved by many of them. All this once again underlines the criticality of an integrated approach to tackle the coal sector mess. Successful coal mine auctions may have removed a major bottleneck, but there are many other challenges that require to be overcome if the country has to leave behind its past failures in infrastructure management.

One area that needs urgent attention is the power distribution sector. Electricity tariff reforms are needed to clean up the balance sheets of power distribution companies in many states. Thanks to an accelerated pace in execution of power generation projects in the last couple of years, few power distribution companies now face problems in procuring electricity for supply to their consumers. The peak power deficit level has declined considerably in the last several months. The problem however lies in the distribution companies' inability to charge tariffs from consumers at a rate that they become remunerative. This has increased the losses of power distribution companies, rendering many of them financially unviable. Unfortunately this has set off a chain reaction adversely hitting the entire power sector. Power generation companies are reluctant to sell power to the distribution companies as they have not been able to overcome their political compulsions of subsidising power rates for a few segments of consumers. Even if coal is produced and made available, its demand from power generation companies may not see any significant rise. A plan to reform power distribution companies in as many as nine states is under preparation. Till such plans result in actual improvement in the distribution companies' financial health, the power generation companies will not be encouraged to produce and sell more power and the demand for coal is likely to remain depressed. For the coal mines auction plan to result in higher coal production, there is now an urgent need for power sector reforms as well.