Last week, the Supreme Court ordered the Central government to de-allocate coal reserves, which will now be handed out through a competitive bidding process. Environmentalists claim that mismanagement of coal blocks will continue through competitive bidding rather than competitive plundering. The auction plan is heading for a greater private stake in the generation of thermal power, still the largest source of energy in India. There are few guesses as to which groups will benefit the most.
Other concerns include that of debt servicing for the project finance raised from public-sector banks.
In an earlier judgment of 25 August, the Supreme Court had held that all allotments of coal reserves, excluding lignite reserves, since 1993 were illegal. This included allocations made by the government-appointed screening committee and through direct government dispensation. This decision had come close on the heels of the BJP-led alliance assuming charge of the Central government.
The new government informed that of the 218 units, coal was being produced from 40, and six more were ready for extraction. The Supreme Court exempted four coal blocks that were given to four ultra mega power projects (UMPP). The Steel Authority of India Ltd (SAIL) and National Thermal Power Corporation (NTPC) run one each, while Reliance Power won the tender for the other two projects.
The Centre had proposed that these be exempt from the 25 August judgment, saying they could be tied up with State-owned power generation units; or they could be handed over to the State-owned Coal India Ltd (CIL). This latter alternative was offered, keeping in mind that there are a large number of labourers already working in the 40 coal mines, who might lose their livelihood.
If the first option were to be exercised, the government could levy an additional Rs 295 per metric tonne on the coal extracted from these mines.
This figure was calculated by the Comptroller and Auditor General (CAG) in an audit that had exposed the coal block allocation scam, which eventually culminated in this judgment. The CAG had tabulated the loss down to each metric tonne extracted from the coal reserves. The CAG report also led to a CBI probe into suspected foul play in the allocation of coal blocks. The CBI told the court that 12 of these 40 blocks, which the Centre wants to stay untouched, were being probed.
The court did not take the suggestion in the spirit of a consolation prize that it was offered. It directed that the allottees who have already been mining should pay the Rs 295 per metric tonne of coal that has been extracted within the end of the calendar year and the figure would be added as additional levy to all new auctions.
The corporate entities are in a tight position from every conceivable angle due to the cancellation of coal reserve allotments. While the apex court was hearing the matter, they had even taken shelter behind “economic collapse” and the devastating effect on corporate social responsibility (CSR) activities of the companies, whose allotments were to be cancelled, saying that it would adversely impact India’s socio-economic condition.
The media has been highlighting poor or sham CSR activities by a large number of these corporate entities, especially those professing to do so within hard-to-reach areas where these coal reserves are situated. These same companies, however, were now using CSR as an excuse to request judicial courtesy of allowing them to continue with the illegal allotments.
The issue arises out of questionable allocation. It is believed that these favours were not bestowed out of kindness but there is large-scale corruption involved. That is what the CBI is probing.
In the court, however, the coal mine allottees claimed that they were ‘victims’ of the allotment scam. Indeed they were; they spent money to erase the level-playing field and then pumped in lakhs of crores of borrowed money into infrastructure for the coal and power units.
The latter is a greater, more burning reason for corporate India to be worried — a huge amount of capital has been poured into these coal reserves.
As per submissions made to the apex court, nearly Rs 3 lakh crore had been invested into 157 coal blocks (until December 2012) and investments into enduse (power, steel, etc) plants amount to Rs 4 lakh crore. The borrowed amount is reported to be Rs 2.5 lakh crore of which the interest is Rs 25,000 crore per year. Needless to say, the majority of these loans were raised from public-sector banks such as SBI, which faces a loss of Rs 80,000 crore — 7 percent of its net worth.
Several of these debts have already been classified as non-performing assets. The government should also be investigating into how these public-sector banks have been lending huge sums under private project finance. A recent incident that came to light was how middlemen facilitate such loans. One such middleman, Pavan Bansal, was arrested for a Rs 8,000 crore loan facilitation scam in an arrangement with several public-sector banks such as Syndicate Bank and financial institutions (FIs) like the Life Insurance Corporation (LIC) of India.
Other FIs such as the Rural Electrification Corporation have had big exposure in financing power projects that had been illegally allotted coal reserves.
The government also said that around 30,000 MW of power generation would be lost by de-allocating coal reserves because the CIL does not have the capacity to produce the coal requirements for the power sector, which uses up around 60 percent of the coal supplied.
The estimated loss in revenue from coal extraction would be around Rs 4.4 lakh crore for this year alone. However, those demanding ‘development’ need to note that if this was the loss for a single year and from 40 coal blocks, the amount that has been lost for coal reserves, which have been held on to without being mined, is much more.
While the Centre said that it would take a year or two to auction off the coal reserves, it has been preparing to start the process in the background. The process is slated to begin within three months, but would be conducted over a period of time. All necessary clearances would take longer than the auction process. But, it could be a test for the Narendra Modi government, which was elected on the promise of delivering ‘development’ at the earliest.
Besides, the government is planning to push CIL into producing coal from some of these reserves to meet the country’s immediate needs. The supervision of that PSU’s performance would also provide an assessment of the current government, which is yet to prove itself.
Lobby groups representing the coal block allottees wanted each case be examined on an individual basis. But the Supreme Court declined, saying that the groups had made sufficient representations before the court, which had then pronounced the 25 August judgment.
While the judgment does not interfere with the CBI probe, it is a cautionary note to all future governments that plan backdoor allotments of national assets to favoured bidders. There can only be one outcome now — a free and fair auction.
This also marks the start of a new era — larger privatisation of power. India reportedly generates 1.63 lakh MW of thermal power. The private sector accounts for around 50,000 MW or 30.67 percent of the total output. Until the last fiscal year, the largest private producer was Tata Power, which generated around 8,560 MW. In April, Adani Power overtook Tata Power by generating 8,620 MW. As per its CEO, by the end of this fiscal, Adani Power is likely to produce around 8,920 MW or nearly 20 percent of privately-generated thermal power in the country.
Adani Power is, no doubt, the fastest growing power company and is set to flourish even more. Meanwhile, Reliance Power, which was growing, is likely to face setbacks. TEHELKA had reported on how Reliance boss Mukesh Ambani is not on the list of Modi’s favourites (Does CAG has a case against Reliance? 2 August).
Rumour has it that as the Centre plans large-scale privatisation of thermal power, Adani is poised to benefit the most, with a few scraps thrown in for the rest of the firms. Considering Adani’s current projects, technical bids in auctions can be easily tailor-made to custom fit this design of privatising thermal power.
What is considerably worrying is how far India has shifted away from developing clean energy. Observers may recall that one of Modi’s first campaign posters was a photo of solar plates over a canal in Gujarat. That tacit promise is nowhere near fruition. Adani Power itself generates only 40 MW of clean energy — less than 0.5 percent of its thermal power generation capacity.
The energy policy should focus on generating more clean energy rather than adding to the thermal power capacity.
Some companies are planning a review of the apex court judgment. Aluminum major NALCO has already moved a petition before the court to review its decision.
A coal block in Odisha was allotted to NALCO in 2004 but the company claims delays due to acquiring land and necessary clearances. However, this profit-making PSU has also been looking for coal in Malaysia, Indonesia, Vietnam, Qatar and Iran. This trend is likely to pick up if the price of coal imports drops further.
There are many projects that bank solely on imported coal, be it the high-grade Australian or Indonesian variety. A plan to import coal from the US is also underway.
The government had suggested that, in case of cancellations, the CIL should take over the 44 mines, other than the two in Sasan UMPP, considering the large number of labourers involved in mining coal. This is a worrying situation because if they are not absorbed into any entity that will get the mines, the government will have to formulate a rehabilitation plan.
The CIL would take some time to consider mining coal in these blocks since it is already suffering huge losses on its own. If history is anything to go by, the CIL is not a great manager of human resources.
Modi’s speeches indicate that he wants to turn India into a manufacturing hub and boost conventional industries. These include industries that rely heavily on energy. Energy requirement will go up substantially due to the focus on conventional sources of power. There is still no clear vision on how to shift to clean energy. As with the UPA, the only din around clean energy sources is for villages, which are encouraged to use solar panels, even though it yields negligible power.
More privatisation will result in high tariffs. Past examples show that the private sector is unwilling to open its doors to performance audit of projects unless one takes the arduous route of going through the court.
The government has formed a high-level committee led by former Union Cabinet secretary TSR Subramaniam to review all existing environmental laws and regulations within two months.
“There are stalemates arising out of the present regulations and the courts are giving orders every day,” he says. “We have been asked to present alternative solutions to the existing framework, taking into account their aims and objectives. For this, we have been conducting public hearings to gather the public’s view.”
Though Subramaniam claims that these meetings have been going well, one such meeting in Bengaluru ended with the committee walking out of its own hearing. Subramaniam says that one of the attendees requested him to recuse his position as the government-stipulated terms of reference for the committee were not in order. NGOs and activists have said that this excluded several environmental lobby groups who wanted to be heard by the committee and do not have faith in its mandate.
This government has already dealt with hurdles such as the Forest Rights Act and other environmental laws. Dissenting voices from within the ruling party, such as tribal leader Jual Oram, will not be heard for long.