Raise royalties, and end dependence on CIL
Business Standard / New Delhi Sep 05, 2012,
The government’s coal mining policy is now widely acknowledged as problematic and clearly needs reform. Changes are required both in the short and medium term – as correctives for the errors in procedure highlighted by the report of the Comptroller and Auditor General (CAG) – and in the long term, to ensure such problems do not recur. Attention has been focused on whether or not the coal block allocations highlighted by the CAG will be cancelled. The Bharatiya Janata Party has stalled Parliament demanding that all allotments be cancelled immediately. This is an extreme step that might not be justifiable. Selective scrapping of licences through a transparent, open process is much more advisable. Meanwhile, competing bureaucratic authorities – the coal ministry and the inter-ministerial group, or IMG, looking into the allocations – appear to have suggested differing approaches to de-allocation. Under such circumstances, a clear line from the political authorities is required. That the Prime Minister’s Office has written, reportedly, to the coal ministry telling it to “expedite” the cancellation of problematic blocks is, thus, welcome, even if delayed.
The IMG is due to report on 58 blocks by September 15. The way forward is clear: all those blocks that have been allocated through a procedure that is not in order should be cancelled immediately. Similar action should be taken with those who have violated the conditions under which the licences were issued. Those companies being investigated by the the Central Bureau of Investigation, too, should be asked to give up their allocated blocks. Further delay is unnecessary; the companies in question were sent show-cause notices some months ago. These resources should then be swiftly reallocated, ideally using the auction methodology outlined in the revised mining legislation.
However, longer-term reform should be carried out simultaneous with these short-term correctives. It is evident that Coal India Limited, or CIL, is not fulfilling its mandate, and a shortage of coal has become chronic. If no political consensus exists for ending the public monopoly of coal mining, then why not set up additional public sector companies to compete with CIL? These could have a controlling government stake, but perhaps with a minority stake from global mining conglomerates that will bring in much-needed know-how. Such changes are necessary; captive mining cannot be persisted with forever. It is inefficient and, even with auctions, open to manipulation by the well-connected. Further, it provides no incentive for the best use of the resources handed out. If a power generation company is handed a block for a short period of time, what stops it from carrying out environmentally damaging strip mining, which destroys seams, for example? The independent mining regulator proposed in the Coal Regulatory Authority Bill, 2012, is being shorn of many of its powers due to objections from central ministries. That cannot be allowed to stand. Meanwhile, royalties must be raised in order to ensure that the windfall gain from captive mines is minimised. The prime minister must take effective action to end the stand-off, empower the new regulator, and ensure that CIL’s monopoly is broken.
Business Standard / New Delhi Sep 05, 2012,
The government’s coal mining policy is now widely acknowledged as problematic and clearly needs reform. Changes are required both in the short and medium term – as correctives for the errors in procedure highlighted by the report of the Comptroller and Auditor General (CAG) – and in the long term, to ensure such problems do not recur. Attention has been focused on whether or not the coal block allocations highlighted by the CAG will be cancelled. The Bharatiya Janata Party has stalled Parliament demanding that all allotments be cancelled immediately. This is an extreme step that might not be justifiable. Selective scrapping of licences through a transparent, open process is much more advisable. Meanwhile, competing bureaucratic authorities – the coal ministry and the inter-ministerial group, or IMG, looking into the allocations – appear to have suggested differing approaches to de-allocation. Under such circumstances, a clear line from the political authorities is required. That the Prime Minister’s Office has written, reportedly, to the coal ministry telling it to “expedite” the cancellation of problematic blocks is, thus, welcome, even if delayed.
The IMG is due to report on 58 blocks by September 15. The way forward is clear: all those blocks that have been allocated through a procedure that is not in order should be cancelled immediately. Similar action should be taken with those who have violated the conditions under which the licences were issued. Those companies being investigated by the the Central Bureau of Investigation, too, should be asked to give up their allocated blocks. Further delay is unnecessary; the companies in question were sent show-cause notices some months ago. These resources should then be swiftly reallocated, ideally using the auction methodology outlined in the revised mining legislation.
However, longer-term reform should be carried out simultaneous with these short-term correctives. It is evident that Coal India Limited, or CIL, is not fulfilling its mandate, and a shortage of coal has become chronic. If no political consensus exists for ending the public monopoly of coal mining, then why not set up additional public sector companies to compete with CIL? These could have a controlling government stake, but perhaps with a minority stake from global mining conglomerates that will bring in much-needed know-how. Such changes are necessary; captive mining cannot be persisted with forever. It is inefficient and, even with auctions, open to manipulation by the well-connected. Further, it provides no incentive for the best use of the resources handed out. If a power generation company is handed a block for a short period of time, what stops it from carrying out environmentally damaging strip mining, which destroys seams, for example? The independent mining regulator proposed in the Coal Regulatory Authority Bill, 2012, is being shorn of many of its powers due to objections from central ministries. That cannot be allowed to stand. Meanwhile, royalties must be raised in order to ensure that the windfall gain from captive mines is minimised. The prime minister must take effective action to end the stand-off, empower the new regulator, and ensure that CIL’s monopoly is broken.
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