Is coal headed for a second round of nationalisation?

The SC's decision to term coal block allocations illegal may undo the first phase of opening up the sector

In about two weeks’ time, the coal sector and allied industrial activity will be in for a major change in the way they function and calculate their margins. What will also likely change is the policy making process for coal which constitutes around 42% of the country’s energy basket. The Supreme Court’s final verdict will be a policy guidance since the apex court has found all the allocations done since 1993 as illegal and not in accordance with the Coal Mining Nationalisation Act. 

 

The illegality of coal blocks has a stamp of finality from the court, but what system will replace the current captive block allocation policy is yet to be known. Whichever way the final order goes, the August 25 ruling of the court labelling 194 blocks illegal has two major implications. One, acts of successive governments over more than two decades have been termed as a wrongdoing. And two, since justice for every illegal act carries a penalty, who will be punished? 

 

Since 1993, about half a dozen ministers have held the coal portfolio, including former prime minister Manmohan Singh. If any or all of them are held responsible, then it cannot be a fine but either a prosecution or a reprimand. 

 

If the industry or the captive block holder is punished, as is being speculated, in the form of a fine on every tonne of coal produced or yet to be produced, then the illegality is assumed to have been committed by the holder of mining rights. Taking away of the blocks, which are linked to end-use projects, is in itself a penalty. But herein lies a problem, since the sole burden would land on the shoulders of the companies. 

 

The court has held that the process followed by the screening committee was not transparent. Assuming that all captive mining rights given out through this route had an element of corruption, then with one stroke of “illegal labelling”, the opening up of the coal mining sector to private users of coal would be undone.

 

This brings me to the other important implication of coal block allocations being termed illegal. The Supreme Court has also held that coal mining under the Coal Mining Nationalisation Act can be done only by the Union government and its companies. In other words, it has upheld the nationalisation of coal mining that was done under the Indira Gandhi government. 

 

When Indira Gandhi nationalised coal mining in the ’70s, she was riding a wave that wanted to end profiteering and malpractices in many sectors including oil and banking. Until then, coal had been mined privately with virtually no regulation. Though Gandhi’s socialist moves have for long been a subject of criticism, she left some captive coal mines belonging to IISCO, TISCO and DVC untouched. Some 20 years later, captive mining got another short in the arm when the government decided to amend the Coal Mines Nationalisation Act again, this time to permit captive mining by others, too. The idea, this time around, was to promote coal production to meet the country’s energy needs. 

 

The next step in this opening up of the sector was commercial mining. Though the Modi government was clear with its intention to introduce this, the Supreme Court order has led to government taking cautious steps towards commercial mining. “We are not opening for the private sector right away. Our first priority is the regulated sector,” Piyush Goyal, minister of state (with independent charge) for coal, power and renewable energy said last Sunday. But with the entire process of captive mining itself rendered illegal, policy making and decisions based on the first phase of liberalisation will be undone and a new policy framework will be court-directed. How this will play out for multiple stakeholders – government, industry, and consumers – remains to be seen.