The Lok Sabha has passed the Coal Mines (Special Provisions) Bill, 2015. After the upper house nod, it will replace the ordinance that has paved the way for auctioning of coal blocks, which were put on hold due to the supreme court order creating a lot of uncertainty in the sector. Anil Swarup, secretary at the coal ministry, in an interaction with Shubhendu Parth and Jasleen Kaur, talks about how the government is revamping the coal sector and bringing in major reforms. Excerpts:

The government has said that the Coal Mines (Special Provisions) Bill, 2015 will help increase coal production. Can you elaborate on how this will impact the sector?

The coal bill is the replacement of the ordinance that was promulgated earlier. This ordinance actually enables the government to auction or allot the (204) blocks that were cancelled by the supreme court (SC). In the ordinance we had kept the coal blocks under three schedules. Schedule I is the universe or all 204 blocks. Schedule II has such 42 blocks where the SC had allowed mining till March 31 to the previous allotees. Though the licences were cancelled, they were allowed to mine till March 31 because mining was going on. Schedule III had 32 mines where the blocks were not mined but almost ready to be mined. The urgency, however, was primarily on account of the 42 mines of Schedule II. Our aim was to put somebody in place by March 31 so that mining does not stop. Of the 42 mines not all were auctioned. Some were being allotted as well. And the allotment process is underway which should get over soon. Overall, we have auctioned 19 mines where the mining process is on. Of these, agreements for 15 mines have already been signed, while in the case of the remaining four mines some examination is taking place and the decision will be taken soon.

But how will the bill help increase coal production in the country?

Let me give you a perspective. The 42 mines that are in Schedule II have a peak rate capacity of 90 million tonnes per annum. This has to be understood in the context of about 600 million tonnes coal production in India. Of this only about 30-35 tonnes was being mined earlier. My understanding is that given the aggressive bidding by the players, they will mine quite aggressively and will reach the peak rate capacity by next year itself. So, we will have another 90 million tonne coal in the market. On the other hand, the 32 mines in Schedule III have the peak rate capacity of 130 million tonnes. So just from these two sets of mines we are looking at additional 220 million tonnes of coal. If we go beyond this, the remaining of the 204 mines, the overall capacity would be more than 400 million tonnes. We are looking at this sort of coal production in next four-five years. In effect, 90 million tonnes will come immediately in the next year and 130 million tonnes of Schedule III will come, perhaps, in a year and a half. The other mines which will require greater exploration will take about three-four years. As you know, overall we have a plan to produce about 1.5 billion tonnes by 2020 of which nearly 1 billion tonne will come from CIL  (Coal India Ltd) and the rest from other companies.

Are you not being too ambitious by expecting CIL to touch 1 billion tonne coal production by 2020?

I agree. We are consciously ambitious. But the production in CIL has already gone up quite substantially this year. The rate of growth is
7 percent, which is the highest in the last so many years. So, the signs of improvement in production are already there. Also, we have worked out a mine-wise plan with detail understanding of what it takes to ramp up the production in each mine. This may relate to environment clearance, land acquisition, law and order and evacuation. We have identified each of these issues and they are now being taken up with the concerned ministries and state governments. I have personally travelled to all coal producing states, including Jharkhand, Chhattisgarh, Odisha and West Bengal and have had intensive discussions with the senior bureaucracy to make things move. And things have started moving already. One reason why production has increased is because the clearances and permissions are now issued quickly. We are confident that over a period of time this process will improve further and we should be able to achieve compounded growth.

Do you mean to say that lack of clearances and bureaucracy was hindering CIL’s growth?

There are a lot of issues, including environment clearances, non-availability of land, law and order situation and evacuation. Even today, almost 30 million tonne of coal is available on railway sidings that we have not been able to evacuate. So, I cannot really blame CIL for that. In a particular subsidiary, production had to stop because there was no place to store the coal. They do have issues. This is not to say that there are no problems with CIL itself. But there are other issues and we are trying to address them all.

So, what are the problems?

First, they did not have a chairman for a while. Now they have one and he is working hard to improve the image of the organisation. CIL has also started using technology quite intensively to do away with corrupt practices – from GIS-based mapping to tracking the trucks with sensors. Today technology is transforming the company. This is being replicated in all the subsidiaries.

But does environment clearance continues to remain one of the biggest issues?

I would not rate environment clearance as a big issue now. Things have changed during the last three-four months. We have set up an institutional mechanism to resolve these. Today, all issues related to Coal India are put up on the coal project monitoring portal. We take up these issues once a month with the concerned ministry and discuss them threadbare to resolve them. We also discuss the issues once in two months with the states – with the chief secretary, and other senior officials, including the district magistrate and collectors. So far it has worked and I am sure it will continue to work.

Experts suggest that there should be flexibility in the SC ruling that bans mining in the entire lease hold area until forest clearance is given. What is your opinion?

There are a few things over which one has no control. There is a ruling and one has to live with it. However, irrespective of that ruling there are areas where no such issue exists. There are some mines which may be impacted by the SC ruling, but there are many that have not been impacted by it. So, the question to ask is whether we are mining optimally in those mines where there is no such problem. My approach is to focus on those issues and problems that can be resolved rather than crying over issues on which we have no control.

The government is creating a lot of competition in the sector by bringing in private sector players. How will this help?

Only Coal India or the private sector cannot alone address the nation’s coal requirement. Both will have to work in tandem. That is why I spoke of 1.5 billion tonnes – 1 billion from CIL, which is about doubling their existing production – and rest 500 million from the private sector. If one of them falters, the nation’s requirement would not be fulfilled. I would like to point out that there is enough space for Coal India and the private players in this sector. While there will be some competition I do not think there is a constraint of space. Both have a role to play and can co-exist.

What would be the impact of coal reforms on the sector?

The transparent mechanism that we have put in place will impact the whole process of auctioning out natural resources in the country, not merely coal. We have employed certain new mechanisms like reverse auction for keeping the lid on the tariff. Apart from that the whole process is totally transparent in terms of people getting to know what is happening. Nobody can say that they have not been informed about certain critical piece of information which could impact his bidding.

This is a phenomenal thing and people have been appreciating that. But more than that it has actually established the fact that we can get a lot of value for our natural resources through a transparent process. Imagine a scenario where the entire value is going to states today. The centre is doing all the hard work but the real benefit is going to state governments.

But there have been allegations that due to reverse auction the share of states would decrease?

There is a value in coal that gets shared between the host and the consumer state. In terms of reduction of tariff the consumer will benefit. The state also gets the royalty and the base price. If the power generation happens in the host state, that value also goes to the same state government. In fact, it is the most equitable way of distributing natural resources. It is not being cornered by one state. Rather, it is being shared between the consuming state and the host state.
How do you decide the base price?

It is determined based on the net present value. On the basis of that we determine the value of a particular mine. This is used to define the floor price or base price for each mine. But ultimately the net present value becomes meaningless because the bidding happens over and above it.

The centre has also been criticised for not consulting states on selection of coal blocks…

I would challenge anybody who says that the state governments were not consulted. On every step they were consulted. I have personally interacted with the chief secretaries of all the states and they will vouch for it.

So what were the criteria used to decide how many coal blocks would be kept for the regulated and unregulated sectors?

What has to be kept where is based on a scientific criterion. For example, if a mine had a particular quality of coal then obviously it could not go to power. Say if a mine is really big, say 100 million tonnes or more, it cannot go to an industry which does not require that much coal. By and large it has gone to the power sector. There was a technical committee which determined the criteria and which mine should go where. All these questions have risen because coal blocks have brought so much of value. Otherwise, no one asked these questions. They were being distributed just like that and no one questioned that. The value is visible.

It has been alleged that the unregulated sector did not get a fair share of blocks.

It [allocation] is determined by the quality of coal and the size of the mine. We can’t give a big mine to a small user. It would be waste of resources. There will be many more mines which are smaller and would subsequently be given to the unregulated sector.

Were the players informed about the  the criteria?

Yes, it was discussed among all stakeholders. It was decided in an inter-ministerial committee. All ministries collectively took the decision. The coal ministry did not take the decision alone. Everything is transparent; it is there on the portal. All the minutes are on the portal. Nothing is secret in what we have done.

If we talk about coal reforms, the transparent method of auction of coal blocks is a major step. What would be the next step?

After allocation of coal blocks, the next step will be to bring transparency and use of technology for  providing coal linkages that is part of CIL’s mandate. Right now it is done through a committee and they take a call on who should be given and at what price it should be given. We would like to bring transparency in this and we are working on this. We are trying to find out if these linkages can also be auctioned. There is a committee that allocates linkage of coal, which is the regular supply of coal at a particular price which is the Coal India price.
While the price is different for the regulated and unregulated sectors, we do not have much of a problem in the regulated sector because the concessional price of coal gets passed on to the tariff, which remains low. However, in the unregulated sector there are two issues. One, we need to decide whether the coal should be given at a cheap rate or not. And, two, in case it has to be given at a particular price then who should get this. Should this be determined in an ad-hoc manner?

Another exercise that we are doing on this front is rationalisation of linkages. Right now there is a situation where coal is given to a unit which is far off, while there is another nearby plant that is importing coal. If that is reversed we would save on transportation cost. A
detailed exercise was done by KPMG where they have calculated a saving of around '6,000 crore. The first stage of rationalisation is already happening and this would result in savings of '1,100 crore per annum. Second stage is being considered now.

parth@governancenow.com

(The interview appeared in the March 16-31, 2015, issue)