Govt plans four-fold increase in production from captive coal blocks

SEEKING POWER

The government has planned more than a four-fold increase in coal production from captive blocks to 120 million tonnes (mt) per year by 2012. This is overambitious, say industry experts, given that production from such blocks is a paltry 27 mt at present, 35 years after the first captive block was allotted to the private sector.

"Our call is that the total production from captive coal mines will not be more than 47 million tonnes by the end of the Plan (2012)," said N Nagarajan of CRISIL Research.

Since it takes five to six years to get all the clearances (land, water, environment) and develop a mine, and since bulk of the allocations have happened only recently, large-scale production will be possible only in the 12th Five-Year Plan (2012-17), when about 50 captive blocks are expected to be producing coal.

"Developing a mine is not easy. Some of the blocks allocated may not start production," added Nagarajan.

The government is, however, confident that it will be able to raise the coal production from captive blocks to 18 per cent of the overall production by 2012, from about 6 per cent at present.

There are a lot of companies lining up for these blocks. In fact, in the last round of allocation, more than 700 applications were received for 15 coal blocks earmarked for the power sector.

This is in contrast to the pre-liberalisation period, when there were very few takers for these blocks.

"There were just one or two companies interested in a block. In contrast, today, 15-20 companies are vying for a single block," said a former chairman and managing director (CMD) of a subsidiary of Coal India Ltd (CIL) who was also part of the inter-ministerial screening committee for the allotment of coal blocks.

Of 172 coal blocks allotted so far, 86 have been given to the private sector (for power, cement, steel, aluminium, etc.) while rest have been allotted to the state- and public-sector companies.

"The difference this time around is that bank guarantees have been sought from applicants, and there are penalties for missing deadlines in the mine development plan," said a senior government official.

Despite the improvements, industry observers say the current process lacks objectivity. "Due to existence of elements of judgement and discretion regarding assessment of applicants, the process has been slow as well," said Dipesh Dipu, principle consultant, PwC (Coal).

He cites the example of the 15 coal blocks allocated recently to the power sector, which took almost a year, and the "final letter of allocation is still to be issued", laments Dipu.

According to an industry official, companies which are already holding coal blocks without doing any work on them again compete for the new blocks and get away with it.