The debates on how best to allocate the country's natural resources following the allegations against the government for the way it handled coal mine allocations have all highlighted the following points:
Natural resources need to be exploited for commercial purposes; they are essential for a whole lot of our needs, from the construction sector to power generation.
The value of all these resources is bound to steadily go up without any relationship to their cost of quarrying or mining. River sand is an easy-to-understand resource whose price has gone up steadily without any relation to the cost of mining.
The resources need to made available to those who use it for essential purposes at the right price and in adequate quantities.
Sufficient incentives need to be given to those who can unearth the resources in good time.
The government needs to have a coordinated mechanism between ministries for allocation that will attract the right people with the required expertise to undertake the job, rather than those with special skills to cut through the labyrinth of clearances and permissions from the various state and central ministries with or, as is invariably the case, without the right expertise.
Care should be taken to ensure that those involved in unearthing the resources get sufficient profits but never windfall profits
Whenever the resource unearthed is used for a public utility such as power, price maximisation need not be the most important consideration.
In such situations, as the resource may be given to the private sector at a price lower than the market price, conditions should be attached to ensure that the difference in price is passed on to the people of the nation and not, as in the current situation, added to the profits of the private company.
Moving ahead
If we can broadly agree on the above objectives then the way forward would be:
1. Cancel all blocks obtained by those who are not genuine users of the coal and who lack expertise in coal mining.
2. Those who are using coal to produce power must be made to sign a Power Purchase Agreement with State utilities at prices which factor into account the savings in power production costs thanks to near free coal, the cost of which is the primary cost in power generation.
They should also sign agreements to limit mining to the extent needed for power generation and not use the blocks to mine and sell coal and reap windfall profits out of it.
Alternately they may be allowed to sell power in the open market but must be charged a suitable royalty for mining the coal so that a good portion of the price difference between cost and market price of mined coal goes to the rightful owners, the people of India, by paying it to the State and Central governments.
3. Similarly steel manufacturers too must sign a sale of steel agreement with State and Central governments to pass on the benefits of near free coal/ore.
Alternately they must agree to pay mining royalty to share the difference in price of an unearthed resource and market price with the people of India to whom these resources belong by sharing it with the State and Central governments.
All royalties should be revised periodically based on the current market prices and increase in extraction costs
4. Those who wish to mine these resources for open market sale too should be allowed to keep the mines but must be made to pay higher royalty than those who are investing to add value to the resource.
They should be asked to give a minimum guaranteed royalty against a calendar with a bank guarantee too, to ensure that they do not squat on these resources.
5. However the most important need is to have a coordination team involving the Central and State ministries to ensure that no project is held up due to clearances and no special skills are required on the part of the entrepreneur to “manage” the clearances.
6. Royalties for the different categories of mines/usage must be fixed quickly and transparently. Given the wealth of geological data available, and with the Comptroller and Auditor-General of India and other expert bodies on mining costs, these figures should be valid for three years. These rates can be fixed within a very short time given political will. Allottees should be warned that cancellation is the only other alternative.
7. All legacy leasing done in the past too needs to be brought under the above set of guidelines, irrespective of its age, in order to create a level playing field among all manufacturers of the same commodity. Without this, newcomers will be forced to come up with innovations to beat the guidelines in an effort to create a new level playing field with those enjoying old legacy leases that provides them with zero cost resources — illegal mining is one among them.
Benefits given at the nascent stage of industrialisation decades ago should not be continued after the industry has matured
8. Lastly, those power producers who have got mines should be penalised for raising the issue of coal shortage with the Prime Minister’s Office to get Coal India Limited to sign a fuel supply agreement.
Greed in all forms must be highlighted and those whose greed has vitiated the entire atmosphere and brought down our growth rate, kept our inflation at high levels and affected the quality of life for a billion Indians must be shamed by naming them with the quantum of loss they are causing to the people of the country by usurping national wealth even as we do everything to stop it immediately.
(Manikam Ramaswami heads a textile manufacturing company in Tamil Nadu.)
