Waiting for a plan

Govt seems to be ignoring implications of coal cancellations

Some time has passed since the Supreme Court's judgment cancelling over 200 coal mine allocations made by the government from 1993 to 2011. The court determined that the methods followed for allocation of these coal blocks were flawed and these in any case violated the terms of the Coking Coal Mines (Nationalisation) Act of the early 1970s; only Coal India Ltd could mine coal in India, and so the allocation of mines to private producers or even to companies controlled by India's state governments was illegal. While the wholesale cancellation was not precisely expected, it should have been foreseen as a possibility at least - after all, the Supreme Court's past decision on the cancellation of telecom licences it judged illegal should have been foremost in the government's mind when it considered contingency plans.

However, it is worrying that there seems to have been no planning for the worst. Simply put, the very enormity of the implications of the Supreme Court's order does not seem to have been adequately appreciated by the Centre. The impact of the judgment will likely be huge on the coal and power sectors. It will affect over 50 million tonnes of coal production; power capacity of 28,000 megawatts is also in the firing line. The government is yet to explain exactly how it intends to secure this capacity. Merely entrusting Coal India Ltd with the responsibility of running the cancelled mines is hardly a solution. The longer the uncertainty continues, the more damage it will do to the economy.

Larger structural questions have also been raised, extending far beyond the coal and power industries to every single sector that has some connection to the government, or to regulators - which is nearly all of them. After all, the question of who can be held at fault for malfeasance has become very complicated for most entrepreneurs. In this case, companies got a government order allowing them to mine coal - but even 20 years later, they have been told the order was illegal, and have been asked to pay a penalty. For one thing, the amount of the penalty - Rs 295 a tonne - has raised questions. The court has said that it has relied on the estimates from the Comptroller and Auditor General. The mines were in operation from 1993, and it is the 2011 price that has been considered for imposing the penalty - it is completely time-invariant. Clearly valid questions can be asked here.

But the fine raises more general questions, too. Should not the government take on the responsibility for past illegality, and not the companies? In other words, it is a question of political risk. When a company gets a permission in India, does it believe the Indian state will choose to subsequently hold to its end of the bargain or not? And if the bargain has to be cancelled through circumstances beyond its control, will it be made to suffer for it, or will the government bear its share of the risk? And, in any case, when do limitations clauses kick in? How far back can a company's conduct and actions - or the conduct and actions of its partners in the government - be investigated?

Prime Minister Narendra Modi said in the United States that the coal judgment would be a first step towards cleaning up the sector. That intent is welcome, but it is unfortunate that his government seems to be taking its own time to actually get moving on the clean-up, or even in announcing the general direction of its next moves. The government, particularly the power and coal ministry - under the same minister at the moment - must come to grips with the vast implications of the judgment, and address these concerns. The only real way out is a complete overhaul of the law, so that worries about illegality end. The law must be changed as soon as possible, so that commercial mining in the private sector can resume. And along with that an effective regulatory body should be set up to monitor all the mining activities and ensure that they comply with the stipulated norms. Without that, the infrastructure deficit that has plagued India for so long will only continue to get worse.