Fate of coal-block allocation: Outcome could be messy for India

The hearings are over and an order is expected from the country's highest court soon. The fate of 218 coal blocks given to companies for captive use will be secured or sealed.

At present, it is uncertain whether all allocations will be scrapped on account of an allegedly flawed process adopted by the government—as the Supreme Court ruled for mobile telephony licences given in 2008 —or only select blocks will be taken back. Either way, both outcomes will be messy, for different reasons.

Partial de-allocation

While it denies any lapses on its part, the UPA government, which made most of these allocations, is recommending a partial de-allocation, ostensibly to minimise the economic and political fallouts.

Last week, its top law officer, attorney general Goolam E Vahanvati, submitted an affidavit in the SC that listed 61 blocks given to private companies where mining was yet to start. It added that the government has given these 61 blocks three to six weeks to obtain all approvals, failing which they will be taken back.

A partial de-allocation, feels the government, will safeguard most of the investments made by companies, both in the blocks and the end-use plants linked to them. The government, in its affidavit, has pegged this figure at Rs 2,86,000 crore, for these 61 blocks—Rs 8,777 crore in the blocks themselves and Rs 2,77,000 crore in the end-use projects.

Cancelling these 61 blocks will entail a financial cost to the companies concerned, though perhaps not as much as the government estimates. The government's figures came from a document prepared by the Coal Controller's Office after collating investment figures made in 178 coal blocks until December 2012. This document states that the figures are “as per the investment certificate submitted by block owners”.

In the cases filed by the CBI relating to these allotments, falsification of information and over-statement of financial strength is a common charge. For example, Green Infrastructure claimed a net worth of Rs 4,600 crore when the actual was barely Rs 2 lakh. The other cost that partial de-allocation levies is a messy and prolonged litigation.

Says Sudiep Shrivastava, an activist and lawyer who is an applicant in the SC case: “If the government takes back blocks for inadequate work progress, companies can challenge it in courts.” This has been the case in some of the blocks taken back by the government.

For instance, Castron Technologies has challenged the de-allocation of its block, Brahmadiha. Till such time as these blocks are in litigation, they cannot be put into circulation again, says Shrivastava. India needs more coal, and operationalising these blocks is one way to plug that gap, which is currently being met through imports.

Full de-allocation

But if the SC de-allocates, its verdict cannot be challenged. Of the 218 blocks given between 1993 and 2011, 100 went to public sector companies, 106 to private ones, 12 to UMPP (ultra-mega power projects) and two to coal-to-liquid projects. In its affidavit, the government has excluded public sector companies, many of which are facing similar delays.

“The current review only focuses on private blocks,” says Ashok Khurana, director-general of Association of Power Producers, a grouping of power companies. The case in the SC centres around the allocation process followed by the government, which, the petitioners argue, was arbitrary and flawed.

As part of the process, a screening committee, comprising individuals from relevant Central and state ministries, considered all applications for a block and then chose a winner. According to Prashant Bhushan, who is representing Common Cause, one of the petitioners, the SC will judge the legality of the allotment process.

“They are looking at the process of allocation, and not the merits and demerits of every individual case,” he told ET in October 2013. In case of a full de-allocation, the investments made by projects linked to blocks that have come on-stream will also be imperilled. A senior executive with a private power producer, not wanting to be named, advocates a nuanced verdict that addresses criminality while being sensitive to economic interests.

“Companies that have begun mining and whose end-use plants are about to go on-stream should be left alone, unless they used fraudulent means to obtain these blocks,” he says. He adds that captive miners, whose enduse plants are still coming up, should be assured coal supply by the government, and their blocks de-allocated and given for commercial mining.

Doing so would also reduce the coal shortage that companies without captive blocks are facing and save their investments from going bad. Partial or full de-allocation, will India's coal shortage be solved? If the blocks freed are auctioned for captive use, the problems plaguing the power sector— with only select producers having access to domestic coal—will remain. For that, India will have to drastically overhaul its coal policies. There are no quick fixes here.