India's Coal Minister Under Fire

India’s coal minister Sriprakash Jaiswal has come under increasing fire following a report by the Comptroller and Auditor General (CAG) that the national exchequer lost Rs1.86 trillion due to a coal policy that allocates blocks to producers instead of awarding them by competitive bidding.

The auditor general questioned the allocation of 142 captive coal blocks between 2006 and 2009 when Prime Minister Manmohan Singh headed the coal ministry. Following the report, there have also been allegations of favoritism.

It is apparent that by trying to pursue multiple aims of keeping coal price artificially low to check inflation and raising output by trying to keep costs of production low, the government has created a model that is a complete failure. India’s coal production has stagnated as serious investors are unsure about returns while non-serious entities interested in profiteering have had a free play.

Clearly, the policy of the state having a big say in the way India’s natural resources are utilized, whether coal, oil or gas does not seem optimum.

Speaking to Asia Sentinel and defending the official position, Sriprakash Jaiswal said that the government has followed an “impartial” and “transparent” process of allotting coal blocks.

“No decision was taken unilaterally,” Jaiswal said. “The union cabinet was involved, the states had a say and views of officials was taken. The allocations were in the best interests of the country – to raise coal output to meet rising demand for power. The same policy was followed by the previous government (headed by the Bharatiya Janata Party, or BJP in the Opposition now).”

In a question-and-answer session, Jaiswal reiterated that New Delhi is committed to moving to open auctions to bring about “more transparency” in the coal sector.

Q: Do you agree with the CAG’s assessment of losses that have been incurred?

A: I do not agree with CAG’s assertion of a presumptive loss to the country. Once the blocks are allotted (at a price deemed much lower than market estimates) companies have to invest a lot of money to produce coal, to set up the infrastructure. There is a lot of risk involved. At the same time, it is in the interest of the government to encourage coal production as it brings royalty earnings and more revenues via tax later. It becomes a win-win situation for everybody, including the consumer.

At the same time, we are looking into the slippages that might have happened. An inter-ministerial group (IMG) has been appointed to look into the matter. Investigating agencies are also studying the matter. We will de-allocate coal blocks on which development work has not begun as stipulated or the claims that were made were not true.

We will follow the due process of law. (Since the interaction with Jaiswal, the IMG has reviewed 29 coal blocks and recommended de-allocation of 13 such assets. Companies affected include Gujarat Ambuja Cement, Grasim Industries, JSW Steel, SKS Ispat and Bhushan Steel.)

Q: Is the government committed to moving to competitive auctions, a policy decision that was taken in 2010? Don’t you feel such a process weeds out the non-serious players, false information being supplied, promotes due diligence, cross-checks and eliminates crony capitalism and fly-by-night operators?

A: We have recognized the merits of open auctions and are working towards it. Competitive bids will be implemented though it will make mining more expensive that will impact the final price of coal that will need to be increased. The process of open auctions has been initiated some time back for 58 new coal blocks for power, steel and others. CRISIL, appointed as consultant to the coal ministry, is preparing the report to fix the reserve price which is taking time. We have taken a decision (much before the auditor general’s report was submitted) not to allocate new blocks till new system is in place. We are also in the process of appointing a coal regulator who will not be a licensing authority but more of an arbitrator to resolve conflict. We want more investors, private and overseas, to enter the coal sector.

Q: Do you see India becoming self-reliant in coal, or will the dependence on imports continue to rise?

A: It is going to be difficult for India to be self-reliant in coal in the near future. We will have to depend on imports. The coal ministry is ensuring coal linkages to power producers, whether from overseas or domestic. There are multiple factors beyond the control of individual entities that hamper production. Land acquisition is not easy, lack of forest and environment clearances, tribal rights and law & order problems due to the Maoist rebels.

It is not easy to deal with all of these, whether for a private entity or the (state-owned) Coal India Limited (India’s monopoly coal producer). However, increased import of expensive coal means the generation chain that involves power producers and distribution companies has become unsustainable. Changes will need to happen in the entire power generation value chain – coal reforms, electricity tariffs and debt reduction of distribution firms. We are making the amendments gradually to study the impact and fine tune the process as we go along.