The government argued on the coal block allocation controversy that auctioning would have raised output prices in the key infrastructure sector of power. However, a closer look at blocks allotted to companies over two decades reveals a majority of the reserves were allocated for consumption in the unregulated sectors of steel, sponge iron, pig iron and cement.
Captive block allocation in the unregulated sectors gave the companies access to cheap coal, allowing low input cost and larger profit by selling the output at market rates.
So far, the government has allotted some 195 coal blocks, after taking 23 de-allocations into account, for captive mining since 1993. These have reserves of a little over 44 billion tonnes (bt). Only 78 of these blocks, with reserves of 19 bt, about 43 per cent of the total, went to the power sector. Further, 27 blocks, with 5 bt of reserves, went to private companies in the power sector.
Prominent among those who got the reserves were Tata Steel, Rungta Mines, SKS Ispat and Power, Sterlite Energy, Jindal Steel & Power, Essar Power and Adani Power.
The Comptroller and Auditor General of India (CAG) observed in its report tabled in Parliament last month that the government might have extended undue financial gains to companies by not following bidding. The coal ministry disagreed. “How can a question of undue benefit arise if power companies supply power on regulated tariff through Power Purchase Agreements (PPAs),” Coal Minister Sriprakash Jaiswal asked Business Standard in a recent interview.
The logic holds good where central and state regulators fix the rate for sale of electricity from projects. But steel, sponge iron and cement makers do not sell their produce at long-term purchase agreements on rates fixed by the government.
Since 2004, the coal ministry had told the CAG in February and March, 17 blocks had been allotted to power sector companies, where the rate was regulated on the basis of input costs and the transfer price of coal assessed on an actual cost basis. “In the case of steel and cement sectors, though the prices of end products are not regulated, a competitive market ensures the best benefit for the consumers,” it said.
Experts, however, do not agree. “The government should do everything possible to keep input cost low. But that does not mean blocks should be allocated for free. Otherwise, who would bear the additional costs like those incurred in replacing project-affected people? There has to be a balancing,” said a senior analyst from an accounting and consultancy company. He also expressed surprise over the fact that the share of the power sector in the total reserve allocation wasn’t more than 43 per cent.
| SECTORAL BREAK-UP OF BLOCK ALLOCATIONS | ||||
| Sectors |
No of | |||
Geological
reserves (MT)
% of total
reserves
Sterlite Energy, Jindal Steel & Power Ltd (JSPL)
Steel, Mideast Integrated Steels
Bhushan Ltd, Usha Martin, Adhunik Metalliks
The Bharatiya Janata Pary has refused to buy the government’s arguments in defense of its block allocation method and is persisting with its demand for scrapping allocations. “Of the 131 blocks, 72 have gone to private companies. We have been asking for de-allocation of blocks so that bidding can happen and more revenue is generated for the govt,” Hansraj Ahir, its Lok Sabha member whose set of questions had led to the CAG probe, told Business Standard.
Some private companies had made windfall gains by selling their shares in blocks and the allocation process, therefore, had basically benefited only a handful of people, he added.
