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Captive coal blocks: Capturing future scarcity today

Captive coal blocks: Capturing future scarcity today

The coal ministry is expected to table the Coal Regulatory Authority Bill in the Parliament in the ongoing Budget Session. If passed, it would mean a new era in transparency in captive coal block allocation. Purnendu K Chaubey reports on the recent notices on the allocations to both public and private companies.

Although India is the third largest coal producer in the world, with reserves of 56,500 million tonne (mt), or nearly seven per cent of the world's total, the current overall production of dry fuel, at 550 mt annually, falls well short of demand in the power, steel and cement industries. Meanwhile, that demand is increasing at an annual rate between 10 and 30 per cent across different sectors in the country. The gap in the demand and supply of coal is projected to go up to 82 mt by the end of the current Plan period in 2012, when the annual demand reaches 713 mt. India's steel sector would alone demand 68 mt of coal in 2012, while the supply is likely to be only 26 mt, according to Planning Commission projections. About 70 per cent of India's own coal production is used in power generation while three quarters of India's electricity is generated from over 80 coal-fired thermal plants. Ministry of Power has targeted coal-based generation capacity addition of about 53,000 MW by the end of the 11th Plan period requiring about 731 mt of coal. This would further increase to 1,125 mt by the end of 12th Plan, ie, year 2016-17. As per the long term assessment made in the Integrated Energy Policy document, the coal demand is likely to rise to 1,434 mt in 2026-27, and to 2,018 mt by 2031-32. There is a widespread apprehension that this enhanced requirement of coal may not be met by coal companies due to resources and other constraints. So coal block allocations have been under scrutiny for any lackadaisical use—and captive coal blocks are particularly in the dock.

Milestones to squat on

The Ministry of Coal has allocated captive mines to bulk users of coal, in public and private sectors. While they have allocated more than 207 coal blocks so far, production has only begun in 26. Companies that are not developing captive coal blocks, allotted to them several years ago, are in for trouble. Most developers have failed to stick to the milestones enumerated in the allotment letter. The Ministry of Coal has taken a serious view of this development and threatened to cancel coal blocks allocated for captive use, citing delay in the development of the mine. The ministry has prepared a list of 93 captive coal blocks where development has not been satisfactory and is currently in the process of threatening the block holders of de allocation by slapping show cause notices on them. Since 22 September 2010, the ministry has issued similar notices to at least 30 such firms. As many as 48 of the 93 coal blocks where development has not been satisfactory, are now in the hands of the private sector while the public sector holds the other 45. This includes the big honchos both in the public and private sector like NTPC, Tata Steel, Jindal Steel and Power (JSPL), GVK Power, Essar Power, etc. The Ministry has threatened them with cancellation of the allocations for not making serious efforts for the development of the block. Show cause notices have also been served on Maharashtra State Mining Corporation, Tamil Nadu Electricity Board, Bihar Khanij Vikas Nigam, Yamuna Coal Company, Jayaswal Neco and Mahavir FerroAlloys.

NTPC has received flak for delay in development of three blocks namely Chattibariatu, Kerandari and Dulanga, allotted to the company in 2006. While the first two were to start production in July 2009, Dulanga in the IB Valley coalfield in Orissa was expected to begin production by 2011.

From a developer's point of view, there are several problems being faced by coal mining allottees right from the beginning, mainly on account of initial planning, conducting geological surveys to ascertain the quantum and quality of reserves, several approvals from multitude of authorities, formulating mining plan and getting approval, land acquisition, relief and rehabilitation, etc. These have been deliberated as follows:

Joint Allocation of Blocks

In some cases blocks have been jointly allotted to a number of players having different interests and status of projects. Some may have their mining plan in the advanced stage while for some it may be lagging.

Geological studies and Plan

The coal block remains largely unexplored and available information on the block has been allotted on sample studies which are inadequate. It is therefore difficult for the allottees to estimate the quantum of investment required for commercial production of coal from the block. There is thus uncertainty about quality and quantity of coal reserves in the block.

Timeframe for implementation: Approvals and Clearances

As per the guideline set by the Ministry of Coal, the coal production from the allocated captive coal block shall commence production within 36 months in case of Open Cast (OC) Mines (42 months if it's in or around forest area) and within 48 months in case of Under Ground (UG) Mines (54 months in case of forest land), from the date of issuance of the letter of allotment of the coal block. This is very difficult to achieve due to:

Presently the Mining Plan is approved by Ministry of Coal with technical inputs from the Central Mine Planning & Design Institute (CMPDIL). Though CMPDIL's role is important to ensure that the coal reserves are being exploited optimally, the time taken by CMPDIL to provide its approval is unduly long. CMPDIL is also facing capacity issues.There is delay in obtaining prospecting approval and forest clearance both of which are estimated to take a year. Prospecting cannot commence unless forest clearance is in place.

Resettlement and Rehabilitation Policy

Standalone captive developers are finding it difficult to implement certain provisions of the R&R Policy. Some of the conditions like a) employment to the large number of locals is difficult when the developer is contemplating contract mining or new technology driven mining methods, as they are far less labor intensive b) locating alternate land for displaced families is also difficult.

Lack of Infra Facilities

Coal blocks are located at isolated regions with no access or connectivity to road and power supply.

Duty Concessions

There is no provision of any duty concessions for importing high cost equipment necessary for developing the coal block.

Evacuation issues

Allotted coal blocks in some cases are locked from all sides by other mines and therefore there are problems with respect to evacuation of coal. Evacuation by railways is difficult if a railway line goes over the coal bearing area. Permission is not easily available.

Slow or no development of captive coal blocks allotted to several companies has been cited a major reason for the increasing gap in the demand and supply of coal in the country. However, the ministry needs to also pay attention to the genuine problems faced by the developer on account of the reasons mentioned above and try to act in close coordination with them to find a win-win solution. Merely issuing the show cause notices and even cancelling the allotment in ultimate cases may only be a short term measure and will not help the country to augment its coal production capacity in the long run.

Need for transparency

The punitive stand taken by the Ministry of Coal indicates that it smells a rat. Considering the fact that in some cases, even critical milestones for the development of the block have not been met by developers, the squatting scenario smells of more than just lack of action. Union leaders have alleged that although coal blocks need to be allotted only to producers of steel or power, companies not connected with these sectors have been allotted blocks. The Mines and Minerals (Development and Regulation) Amendment Bill, 2010 paved the way for introduction of auction through competitive bidding for allocation of coal blocks to private companies for captive use. The new Act should pave way for transparency by replacing coal block allocation done by a government screening panel with allocation of coal blocks through auction.

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