<div>The recent announcement by the union government on<a href="http://www.businessworld.in/news/economy/india/india-to-open-up-coal-mines-to-private-firms-as-modi-pursues-reforms/1585335/page-1.html"><strong> coal auctions </strong></a>is a baby-step compared to what is required in the sector to push growth.<br /><br />It was hoped that following the <a href="http://businessworld.in/news/economy/coal-block-allocations-since-93-done-in-illegal-manner-sc/1498494/page-1.html"><strong>landmark Supreme Court judgement </strong></a>cancelling 214 coal mining licences last month, the first announcement by the government would have some grounding in concrete realities.<br /><br />Unfortunately, the ordinance approved for end-user based <a href="http://businessworld.in/news/business/energy-and-power/the-order-in-a-nutshell/1546661/page-1.html"><strong>e-auctioned mines</strong></a> by the Union Cabinet on Monday – October 20, leaves a lot unsaid.<br /><br />“The ordinance shows the intent to go on to auction mines, but the auctioning policy is yet to be finalised”, says Kameswara Rao, Leader Government Reforms and Infrastructure Development, PwC India.<br /><br />What Finance Minister Arun Jaitley said at a press briefing post the cabinet meeting was this: “The ordinance will clear the problem created by coal blocks being allocated through a screening committee mechanism. The ordinance will also resolve the pending issues arising out of the Supreme Court judgment quashing the previous coal block allocations... But the Coal Mines Nationalisation Act remains intact.”<br /><br />The ordinance is essential but needs to be followed up with many more regulatory changes.<br /><br />In its present form it implies that auctions will remain highly government controlled and the natural resource remains accessible only to those with end-use plants. E-auctions are to be initiated within the next three to four months (<a href="http://businessworld.in/news/business/energy-and-power/the-order-in-a-nutshell/1546661/page-1.html"><strong>SC deadline for the government </strong></a>to put in place a new mechanism is March 2015) through which proceeds will be handed over to state governments, say authorities promising speedy action. Everyone with an end-use project is free to bid from the private sector, while NTPC and State Electricity Boards will be allocated blocks as per their requirement. And the coal monolith Coal India remains unaltered. And as Debasish Mishra, Senior Director Consulting at Deloitte Touche Tohmatsu India Pvt. Ltd. says, “The ordinance is an attempt to ease the process of takeover of mines by new users.” He explains the ordinance does not provide for commercial mining as that is not possible without the amendment of the coal nationalisation act brought in by Indira Gandhi to allegedly counter the coal mafia in the 1970s. <br /><br />As long as the Coal Mines Nationalisation Act remains intact, the worries of the coal industry will remain. The Act bans commercial sale and purchase of coal in the open market by private parties. Analysts have also blamed the provisions of this Act for the coal mess of today – given that it provides next to no flexibility or room for open market mechanisms of price control and demand-supply balancing of coal.<br /><br />The auctioning policy initiated by the former UPA government fell far short of the requirement and the current draft leaves many questions unanswered. Earlier this year in February, authorities had attempted to auction 6 blocks under the new policy but did not find enough bidders and had to roll back the policy. The policy required bidders to pay 10 percent upfront calculated on the potential coal reserves in the mines and a production/ extraction based fee per tonne – it did not account for the cost-value changes in the commodity. A few clauses added to the auctioning policy suggest that those allotted coal blocks now deemed illegal, will be paid the land value of the time it was purchased along with 12 percent carry forward value, cost of equipment etc. <br /><br />But there is nothing about other costs incurred by the mine owners like access roads built by them or geological studies carried out etc. Considering that now all coal blocks need to be auctioned (except the 4 ultra mega power projects (UMPPs) exempted under the SC judgement), these gaping holes are worrying mine owners. Added to this, coal pricing remains a big ambiguity that is yet to be addressed or resolved. The irregularities in the coal sector exposed by CAG two years back cleared proved the need for sweeping reforms in the sector. Instead, the government is still taking cautious piece-meal steps towards opening up the sector. It is hoped the bidding documents and current discussions on the subject rocking the power corridors will result in a substantial action plan to ensure economic growth and energy security in the very near future. <br /><br />Moyna@businessworld.in<br />mmatbworld@gmail.com<br /> </div>
