Does the Delhi High Court’s decision to reject the Tata Power petition mean the government’s decision in favour of Reliance Power (Anil Dhirubhai Ambani Group) on the Sasan Ultra Mega Power Plant (UMPP) was correct? In many ways, the victory is a technical one though, since the law is often more about technicalities than the broader picture, it’s not certain as if the Tatas will win the case on appeal either. Viewed another way, the government’s decision on Sasan was quite in keeping with its captive coal mine policy from which a lot of people, including the Tatas, have benefitted in the past. If what happened in Sasan is unfair, and I think it is, you should see the arbitrariness in the captive mine policy.
Sasan UMPP: In order to keep costs of power low, Sasan was allotted some captive coal mines. The Tata argument was that, after Reliance won the bid, the government set up an Empowered Group of Ministers (EGoM) to allow it, in August 2008, to use Sasan coal for its 4,000 MW Chitrangi power plant as well (after ensuring Sasan’s needs were met). The Tatas argued that if they had known they could use the coal in other plants, they’d also have bid — a captive mine reduces power costs by around Rs 1-1.5 a unit.
The appeal was dismissed on the grounds that, though the initial allocation letter (Sept 13, 2006) for the Moher and Moher-Amlori Extension mines said they could only be used for Sasan, this was later changed. A few weeks later, the Chhatrasal coal block was also allotted for Sasan — it said the coal would be ‘exclusively used in the Sasan UMPP’, but in a subsequent clause it also said ‘no coal shall be sold, delivered, transferred or disposed of except for the stated captive mining purposes except with the previous approval of the Central Government’. In other words, a discretion-sub-clause was introduced. Less than a month later, on the dubious pretext of making a clarification on royalty rates, another notification said ‘it is clarified that condition of bank guarantee as well as all other conditions mentioned in the allocation letter of Chhatrasal block will also apply to all the other blocks allocated for Sasan UMPP’. The discretion-sub-clause now applied to the earlier captive mines as well!
The judges argued the letters were issued before the bidding and the Tatas knew about them, so where’s the problem — the captive mines had more coal than was required for Sasan, the allotment letter said the government could allow coal to be used elsewhere, and it used this discretion. The problem is that while the Tatas focussed on the ‘would be exclusively used in the Sasan UMPP’ clause, Reliance Power focussed on the discretion-sub-clause and the judges accepted this. By way of clarification, most government contracts say the government has the right to change the terms of the contract, but this doesn’t mean (at least it shouldn’t!) the government has unfettered rights to do whatever it likes (interestingly, when the telecom tribunal gave its shocking judgement justifying government policy a few weeks ago, it sought refuge in this very discretion-sub-clause!).
It’s not clear what exactly the judges meant when they said the EGoM’s decision to allow Reliance to use the coal for other power plants was taken ‘after the race was over … Consequently, the rules of the race did not change while the race was on’. One would have thought this was precisely the problem, but presumably this is legal stuff that non-lawyers can’t understand.
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Captive loot: Those, like this columnist, who feel the spirit of the captive coal blocks attached to the UMPPs was that the coal was exclusively for them, should examine the captive coal mine policy. Actually, policy is an incorrect term, since there is really no policy. The government has complete discretion in such allotments — it may not give it for a large power/steel producer but can give it for a bit-player. Till a year or two ago, big power producers like Reliance and Tatas never got captive coal mines. More important, there is no competitive bidding here.
This is worth spending a moment on. In the case of Sasan, or any other UMPP, bidders quote a price for the power. Reliance ADAG quoted Rs 1.2 and won the bid, but the Tatas could have quoted Rs 1.1 for instance. So they get cheap coal, but they have to sell the power at the bid-price. But if I run a steel plant and get a captive mine, I can sell the power produced with this coal at any price — there is no bid at all! I can even sell the extra coking coal I mine at market prices. If I get a captive mine for a power plant, I’m free to sell the power at negotiated rates — by the way, the power Reliance produces at Chitrangi using Sasan coal has to be sold through a competitive bid.
And, oh yes, if you get a captive coal mine (and I have one such allotment letter in front of me), while the coal is meant for the use specified, it has the same discretion-sub-clause — ‘no coal shall be sold, delivered, transferred or disposed of except for the stated captive mining purposes except with the previous approval of the Central Government’.
Moral of the story: The government would do well to remove the discretion-sub-clauses in each agreement it signs; it needs to bring in transparency into the captive-mine policy — allotting mines on the basis of open bids is a good way to do this. You can’t have a discretionary captive-mine policy and yet not expect a Sasan to happen.