THE CITIZEN EXCLUSIVE: Former Director(Tech/Comm) Steel Authority of India U.K.MITTAL writes for THE CITIZEN on the coal scam that has survived governments, albeit in varying degrees.


NEW DELHI: After 214 coal blocks allocated by the Manmohan Singh government were deallocated by the Supreme Court in a far reaching judgement, the new government under Prime Minister Narendra Modi has decided to auction these to virtually the same coal consuming private companies.

This despite the fact that exploration and mining of coal are specialized activities and these coal consuming companies have different specializations as well as different priorities. Coal mining is secondary for most of these companies. The job can be done efficiently only by professional mining companies of international repute, that could raise the coal production level with the necessary transfer of modern technology, and thereby improve overall operational efficiencies. National resources are scarce and strategic ownership eventually has to be with the central government.

While auctioning the blocks, the new Bharatiya Janata party led government. had an opportunity to amend and improve certain aspects of the system which unfortunately has not been done. Such aspects are elaborated below:

1. The UPA government had divided coal fields into numerous small blocks to accommodate as many as Companies as possible. The NDA government could have corrected this mistake before auctioning, as small coal blocks reduce the economics of the scale of operations.

2. In all developing countries allocation of minerals through a competitive bidding route are considered only for proven resources. Proven resources are scientifically measured resources with full reliability. Proven resources are about 40% of the Geological coal resources. Majority of coal of proven reserves can be extracted (especially in open-cast mining). It depends on the technology of mining used. However cost of mining of deeper coal reserve is higher than the mining of the upper seam.

3. The NDA government has auctioned coal blocks on the basis of extractable reserve which is only 50% of the proven reserve. Extractable reserve can be estimated by different methods and results vary. In view of the above, the private companies now are getting 100T of Geological coal reserve by paying only for 20T of extractable reserve. Hence by auctioning coal reserves on the basis of extractable reserve and not on the basis of proven reserve, 50% of the coal reserves are being gifted to the private companies free of cost by the central government now. The UPA government earlier had given 100 per cent coal reserves free of cost to the private companies.

4. What is the justification of supplying subsidized / administered priced coal to coal consuming sectors whose final product prices are not controlled by the government?

The price of steel, cement, aluminium etc are being decided by the respective producing companies, depending upon the market or international prevailing prices. As per Prime Minister Narendra Modi, government subsidy should be utilized only by those consumers who cannot afford to pay.

In my opinion out of all vital sectors only the Agriculture sector and domestic power consumers need to be subsidized.

5. Why should this subsidy be given to power plants through the supply of subsidized priced coal?

For generating one unit (1KWH) power 0.68Kg coal is consumed. The way subsidy is being provided in the present system, inefficient power plants that are consuming more coal than 0.68Kg for the generation of one unit of power are enjoying a higher subsidy amount than the efficient power plants. In other words they are being rewarded for inefficiency.

There is a better way, and this is by subsidizing the tariff for power being supplied to the Agriculture sector and to the domestic power consumers.It is estimated that subsidizing the price of coal by Rs.1000/T is equivalent to subsidizing in power tariff by 0.68/unit.

With this proposed system all power plants will try to produce more power per tonne of coal as subsidy will be given on per unit generated and not on per tonne of coal consumed.

The main purpose of subsidy was to make power available to the neglected agriculture sector, and to domestic power consumers at an affordable tariff. However, under the present system the power producers are getting full advantage of the subsidies offered by the government, and not the sectors for which these were originally aimed.

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