It will argue that to increase production, private parties must be roped in to supplement CIL’s efforts

Even as UPA-II and the Opposition are bracing themselves for confrontation in and outside Parliament over coal blocks allocations during 2004-09, the Prime Minister’s Office and the Coal Ministry are ready with their defence: the policy imperative was to augment production by supplementing Coal India’s efforts with private participation within the parameters of law.

According to documents available with The Hindu, the arguments, which the government hopes to present in Parliament, are based on the fact that auction was not a permissible method expressly provided under the Mines and Minerals (Development and Regulation) Act. There were different opinions on the best way forward. “The State governments had their own viewpoint and some of the coal-bearing, under-developed States were concerned that auction… would hamper their efforts at industrial development…”

The government feels that augmenting coal production is an economic imperative, and therefore captive blocks were allotted under the extant guidelines and procedures until a new system could be put in place.

Hinting at action against private parties, the government says the conduct of some allottees was not above board — diversion of coal for sale in the open market in violation of the allotment conditions and sale of their companies at a heavy premium after getting power without entering into long-term power purchase agreements. But this is an issue distinct and separate from the policy and procedure adopted for coal blocks allotment. “The misconduct and violation of rules by… allottees can take place irrespective of whether the captive coal blocks are allotted through competitive bidding or through the screening committee… Such allottees need to be dealt with firmly and their blocks de-allocated as per the terms of their allotment,” says the note.

“Private sector crucial”

Arguing that involvement of the private sector was imperative, the note says it was perceived that the public sector companies — Coal India and its subsidiaries and Singareni Collieries, which are the sole producers of coal in the country — would not be able to meet the burgeoning demand. Because of power shortage, many industries were forced to set up diesel-based captive generating sets. Therefore, the government adopted a three-pronged strategy: increasing CIL’s production by improving efficiency, removing bottlenecks in production and fast-tracking its projects; leveraging the private sector’s capability to augment production by encouraging captive coal mining in approved sectors as permissible under law; and limited import of coal to meet the shortages.

“The cost of extraction of coal varies from mine to mine… The extraction percentage of the reserves… also varies from mine to mine — higher for open-cast mines and lower for underground mines. To take a ballpark figure and calculate a windfall gain in the captive mines is erroneous. Much more when coal extracted from the captive… blocks cannot be sold freely,” the note argues, faulting the Comptroller and Auditor-General’s calculations that the allocations cost the exchequer Rs. 1.86-lakh crore.

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