According to the CAG,
the underpriced sale and free allocation of coal blocks for captive mining may
have cost the government as much as US$33 bill in lost revenue. At the heart of
the debate is the 1993 policy which broke the government’s monopoly as a coal
supplier and allowed private companies to mine coal for captive use, in a bid
to increase coal production to meet burgeoning demand.
A
recent report from India’s Comptroller and Auditor General (CAG) pertaining to
the allocation of coal blocks has created a political storm in India. The
report alleges widespread corruption in coal block allocation and is perceived
as potentially damaging for the already scam-tainted Manmohan Singh-led United
Progressive Alliance (UPA) government.
However,
the decision resulted in a number of non-coal consuming industries approaching
state governments and signing letters of intent promising to develop coal
consuming plants if they were allocated coal mines. Coal blocks were allocated
to private companies as well as state mining companies who were ill-equipped to
run a power plant as well as a coal mine. Prime Minister Singh was in charge of
the Ministry of Coal (MoC) from 2006 to 2009 when some of the controversial
allocations took place.
A
number of companies developed coal blocks, but the vast majority have been
content to sit on the asset and wait until the government opened up the coal
market to allow private captive coal miners to sell coal into the domestic
market place. Of the 218 coal blocks that have been awarded to date, only 29
are currently in production. Many of these companies blame delays in
environmental clearances and land acquisition issues for their inability to
commence operations.
'Coalgate' Implications
Recently,
the Ministry of Coal has started de-allocating coal blocks from miners who have
not sufficiently developed their assets. As per the latest available data, 24
coal blocks have been de-allocated, including those from private companies
including Binani Cement, Bhatia International Ltd and Lloyds Metal &
Engineers Ltd. The threat of further de-allocation of mines by the MoC, as
political fallout from the ongoing scandal, is expected to induce other mine
owners to be more proactive with project development. There are significant financial
implications for companies who have secured financing and have begun to develop
plants dependent on captive coal blocks. Opposition from the business community
is fervent as many coal-consuming plants are ready or partly ready, financing
has been secured and industrial equipment has been ordered. If coal blocks are
de-allocated, billions of dollars loaned to finance these projects would come
under threat.
It
is imperative for India to secure energy for its growing economy. It is facing
severe shortages of domestic coal supply and ‘Coalgate’ will now join India’s
ultra-mega power project (UMPP) policy as a shining example of failed energy
policy. Salva does not believe that captive mining will grow to 653 Mt by 2020,
as forecast by India’s Planning Commission.
Developments in
captive coal production have the ability to widely swing India’s imported coal
demand, particularly for thermal coal. The political and commercial
implications of India’s ‘Coalgate’ scandal and captive mine development are
worth keeping an eye on as India’s Central Bureau of Investigation initiates
the due process of law against some of these companies. The repercussions will
affect not just India, but possibly world coal markets.
Sourced from : Salva Report
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