)
The Supreme Court order holding mining rights given out by state governments to private companies as illegal, has put the fate of companies functioning as mining developers and operators under a cloud.
Companies like Monnet Ispat, Reliance Power and Adani had chalked out plans to operate as mining development operators (MDOs). In April 2013, Adani announced the launch of its integrated MDO operations with the start of coal production from the Parsa East-Kente Basan mine in Chhattisgarh. The coal mine has reserves in excess of 450 million tonnes.
The Union government had allotted coal blocks to 29 state government PSUs through the screening committee route and another 72 blocks to PSUs under the government dispensation route. Under the latter route, only state or central government entities were given mines. The state governments, however, appointed MDOs for commercially mining coal in some cases.
Interpreting clauses under the Coal Mining Nationalisation (CMN) Act, the apex court observed that commercial mining could not be carried on by the state government or the state PSUs. “Most importantly, the Supreme Court has observed that development of coal blocks can only be done by the central government or central PSUs,” said Dhananjay Sinha, head, institutional research, Emkay Global Financial Services.
In case of Adani, the company would produce 15 million tonnes of coal annually from the block in Chhattisgarh starting from 2017 onwards. Coal would be supplied to Rajasthan State Electricity Board power plants. According to the company website, Adani has access to coal reserves of over 3 billion tonnes from 4 MDO contracts including this project.
The Chhattisgarh contract was the first among the four MDO contracts bagged by Adani Enterprises. The company has outlined a phased capital outlay of Rs 3,000 crore for the entire block.
According to P C Parakh, former coal secretary, states should not give out blocks allotted to them to private companies. That is because the fact is that states do not have the expertise to do mining.
The court observed the state PSUs, besides having been allocated coal mines for commercial purposes, have also been allowed to form joint venture companies, with 51% shareholding of state PSUs and 49% of private companies. “However, in the joint venture agreements between the state PSUs and the private companies, mining operations have been given to private companies,” the order observed.
Chhattisgarh Mineral Development Corporation (CMDC), for instance was allocated Sondiha, Bhatgaon-II and Bhatgaon-II (Extension) coal blocks. CMDC formed a joint venture with selected bidders, who would explore, develop and operate it and sell the coal commercially to various consumers in the open market. Similarly, the joint venture agreement between the Madhya Pradesh State Mining Corporation Limited and Monnet Ispat and Energy Limited reveals that the joint venture company was further allowed to enter into MDO agreements with other private partners or sister concerns.
“This modus operandi has virtually defeated the legislative policy in the CMN Act and winning and mining of coal mines has, as a result, gone in the hands of private companies for commercial use,” said the order.tion of existing linkages could put the companies holding these blocks in the dock.
