It was not just the law ministry that suggested a competitive bidding regime for coal block allocations. Even the high-powered Investment Commission set up by the government had come out with similar recommendations.
In February 2006, the Investment Commission had recommended a series of steps to attract an investment of $15 billion in coal mining by 2010. Among these were suggestions of competitive bidding — a model based on the National Exploration Licensing Policy (Nelp) for oil and gas exploration to attract private sector investment into the sector. The panel had also suggested time-bound deliverables and strict measures to take back unutilised blocks to prevent hoarding.
Again, on December 2007, the commission came up with specific suggestions for thrust areas like the power sector, addressing key issues like incentive-based distribution reforms, easing of fuel supply bottlenecks and a 10-year rolling plan, instead of a five-year one.
| THE $15-BN COAL GOAL Recommendations of the Investment Commission, dated February 2006 |
| * Carve out specified viable mining blocks from Coal India for captive exploitation |
| * Encourage CIL subsidiaries to induct strategic partners from leading mining companies |
| * Mines closed by CIL be offered to private sector |
| * Adopt Nelp model for private participation |
| * Successful bidders be chosen after assessing financial, technical capability and work programme |
| * Fixed royalty payments to be offset against upfront bid amount |
| * Use-or-lose policy to prevent hoarding and ensure best competitive use |
| * Allow 50% FDI in coal mining under the automatic route |
| * Permit partial merchant sale of coal by coal mines |
Listing the detailed recommendations, a Tata Sons release issued today said these clearly disproved reports that the Investment Commission had made a “proposal to allot Coal India (CIL) blocks to private companies”. A newspaper website had posted a draft report of the Comptroller and Auditor General that said, “Based on the recommendation of Ratan Tata, chairman, Investment Commission, on initiatives in the power sector, the Energy Coordination Committee under the chairmanship of the Prime Minister decided since of the 289 coal blocks reserved for CIL till then (February 2006), only 150 were planned for production by CIL up to 2011-12, some of the 79 coal blacks explored in details should be handed over to NTPC and others for mining.”
Ratan Tata, chairman of the Tata Group, along with HDFC’s Deepak Parekh and former Hindustan Unilever chairman Ashok Ganguly, led the Investment Commission.
The panel’s first report, Investment Strategy for India, had made five specific recommendations for coal sector reforms:
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1. Carving out “specified viable mining blocks from CIL for captive exploitation. Alternatively, encourage subsidiaries of CIL to induct strategic partners from leading mining companies.” The partners could develop existing blocks on a production-sharing basis.
2. All mines closed by CIL should be offered to the private sector in case there are viable recoverable reserves. The commission took note of the successful auction of oil and gas acreage in the country and suggested, “Adapt the Nelp model for private sector participation in coal mining by offering good quality coal blocks for bids.”
3. There were caveats in getting only serious investors in the sector. “As in Nelp, award to be based on a quantitative evaluation of financial package/bid, technical capability, financial capability and work programme. Fixed royalty payments, per tonne extracted, as currently notified, to be offset against upfront bid amount,” the report said. The upfront bid amounts would be paid to the respective state governments.
4. A strict, time-bound action plan. “Institute a use-or-lose policy for all blocks to prevent hoarding and ensure best competitive use,” it said. This was again mentioned in the second report, submitted 18 months after the first.
5. Allowing 50 per cent foreign direct investment under the automatic route for coal mining and for permitting merchant sale of coal by coal mines.
It was envisioned that these recommendations, if implemented, would draw $15-billion investment by 2010. “Given India’s large reserves of 240 billion tonnes, it is assumed coal would be the major source of energy, especially for power generation. Despite its vast reserves, India produces only 360 million tonnes a year of coal. An investment of $30-40 billion is required over the next 10 years for India to double its annual coal production, apart from modernising mines and developing related infrastructure. Currently, the visibility on investments in this sector is less than $2.5 billion,” the report had stated.
The monopoly of CIL, the commission said, was the “largest impediment to investments in the sector. The dominant incumbent is not only perceived as inefficient, but also carries a poor record of quality, quantity and on-time delivery of coal.”