Politics in command — the Modi regime upholds this aphorism with a vengeance, even when it tackles an economic problem. There is no other explanation for the shoddy job it has done with its coal ordinance meant to tackle the mess caused by the cancellation of coal allocations.
The cancellation of coal allocations by the Supreme Court (SC) served the political purpose of discrediting the previous UPA government — explaining the coal ordinance, finance minister Arun Jaitley kept referring to the mala fide allocations since 2004, never mind the SC cancelled all allocations since 1993, including the ones made by the BJP-led government of 1998-2004.
Culprit: State Monopoly
The obvious and comprehensive solution to the coal mess is to remove state monopoly in coal mining, brought in by the Coal Mines Nationalisation Act (CMNA) of 1973. While the present government has the numbers in Parliament and the political authority to scrap this disastrous law, it prefers piecemeal reform.
To say upfront that the law and the grave shortage of coal it led to, by concentrating all coal mining in the hands of inefficient Coal India, paved the way for captive coal allocations would be to dilute the present public perception that the UPA created the coal mess.
The piecemeal reform keeps the UPA’s culpability intact in public perception, but does it tackle the problems created by the cancellation of mine allocations and the fine of Rs 10,373 crore levied on the 351 million tonnes of coal that has been mined from 40 captive mines since 1998?
Why Change Perception…
But for these captive mines, India’s GDP would have been smaller or the country would have imported an extra $21 billion worth of coal, straining the balance of payments. Does the ordinance do anything to recognise this economic gain India derived from these captive mines?
The SC cancelled coal allocations en masse because of not just arbitrary allocation but also of the technical illegality involved in state government enterprises and private entities getting mines, however legitimate their end-use. Under CMNA and its amendments, said the court, only central enterprises are eligible to get captive mines. Presumably, the ordinance will remedy this, and make private entities, joint ventures and state government enterprises eligible to get captive coal mines.
Captive mines are inefficient. Suppose a cement plant gets a mine and has excess coal. A neighbouring power plant might be running short of coal, but the cement plant cannot supply the power plant. The ordinance could easily have scrapped state monopoly and allowed full-fledged commercial mining. This would bring in professional miners, absent underground mining techniques and vastly improved production and productivity of coal mining in the country. But that has been postponed to some indefinite future.
No company with a producing captive mine has been convicted of any illegality. So, all of them can take part in the auctions. But there is no preference being given to those who invested in the mines, developed them and now produce coal. So, a Hindalco could take part in the auction but see its mine being auctioned off to Jindal Steel and Power or to an altogether new seeker of captive coal.
…That UPA is to Blame?
A contingency of ongoing production being disrupted by loss of a coal mine can be avoided either by collusion among bidders or by making so many shovel-ready mines available as to satisfy everyone’s need. The latter option does not exist. Collusion would defeat the purpose of auctions. So, there is the real danger of some companies that have invested in mines and have been producing power/steel/cement now being left stranded with no access to coal. This would endanger their shareholders and the banks that have lent to them. The ordinance is blind to this.
How are the companies to pay the Rs 10,373 crore fine the Supreme Court has imposed on them, acting on the wholly arbitrary proposal of the government to collect the undue benefit the CAG claimed these companies got? Now, the CAG’s computation is based on timeless average costs of Coal India, which mined the best-quality mines and left its rejects for captive mining. So, the computed undue benefit is an exaggeration.
And, to the extent the companies got excess profits, corporate tax has been paid on those profits. The government says a new authority will work out how to compensate the companies with cancelled producing coal blocks for their abrogated investment. Will this compensation cover tax paid on undue profits? Will it cover the fines themselves? If a company goes sick because it cannot pay the fine and win a coal block in the auction, who will pay its shareholders/bankers for the loss? How is this mess tackled by the ordinance?
A sensible ordinance would have scrapped state monopoly in coal, retrospectively removed the illegality of producing mines of private/state government-owned companies with no established criminality in the allocation process.
The cancellation of coal allocations by the Supreme Court (SC) served the political purpose of discrediting the previous UPA government — explaining the coal ordinance, finance minister Arun Jaitley kept referring to the mala fide allocations since 2004, never mind the SC cancelled all allocations since 1993, including the ones made by the BJP-led government of 1998-2004.
Culprit: State Monopoly
The obvious and comprehensive solution to the coal mess is to remove state monopoly in coal mining, brought in by the Coal Mines Nationalisation Act (CMNA) of 1973. While the present government has the numbers in Parliament and the political authority to scrap this disastrous law, it prefers piecemeal reform.
To say upfront that the law and the grave shortage of coal it led to, by concentrating all coal mining in the hands of inefficient Coal India, paved the way for captive coal allocations would be to dilute the present public perception that the UPA created the coal mess.
The piecemeal reform keeps the UPA’s culpability intact in public perception, but does it tackle the problems created by the cancellation of mine allocations and the fine of Rs 10,373 crore levied on the 351 million tonnes of coal that has been mined from 40 captive mines since 1998?
But for these captive mines, India’s GDP would have been smaller or the country would have imported an extra $21 billion worth of coal, straining the balance of payments. Does the ordinance do anything to recognise this economic gain India derived from these captive mines?
The SC cancelled coal allocations en masse because of not just arbitrary allocation but also of the technical illegality involved in state government enterprises and private entities getting mines, however legitimate their end-use. Under CMNA and its amendments, said the court, only central enterprises are eligible to get captive mines. Presumably, the ordinance will remedy this, and make private entities, joint ventures and state government enterprises eligible to get captive coal mines.
Captive mines are inefficient. Suppose a cement plant gets a mine and has excess coal. A neighbouring power plant might be running short of coal, but the cement plant cannot supply the power plant. The ordinance could easily have scrapped state monopoly and allowed full-fledged commercial mining. This would bring in professional miners, absent underground mining techniques and vastly improved production and productivity of coal mining in the country. But that has been postponed to some indefinite future.
No company with a producing captive mine has been convicted of any illegality. So, all of them can take part in the auctions. But there is no preference being given to those who invested in the mines, developed them and now produce coal. So, a Hindalco could take part in the auction but see its mine being auctioned off to Jindal Steel and Power or to an altogether new seeker of captive coal.
A contingency of ongoing production being disrupted by loss of a coal mine can be avoided either by collusion among bidders or by making so many shovel-ready mines available as to satisfy everyone’s need. The latter option does not exist. Collusion would defeat the purpose of auctions. So, there is the real danger of some companies that have invested in mines and have been producing power/steel/cement now being left stranded with no access to coal. This would endanger their shareholders and the banks that have lent to them. The ordinance is blind to this.
How are the companies to pay the Rs 10,373 crore fine the Supreme Court has imposed on them, acting on the wholly arbitrary proposal of the government to collect the undue benefit the CAG claimed these companies got? Now, the CAG’s computation is based on timeless average costs of Coal India, which mined the best-quality mines and left its rejects for captive mining. So, the computed undue benefit is an exaggeration.
And, to the extent the companies got excess profits, corporate tax has been paid on those profits. The government says a new authority will work out how to compensate the companies with cancelled producing coal blocks for their abrogated investment. Will this compensation cover tax paid on undue profits? Will it cover the fines themselves? If a company goes sick because it cannot pay the fine and win a coal block in the auction, who will pay its shareholders/bankers for the loss? How is this mess tackled by the ordinance?
A sensible ordinance would have scrapped state monopoly in coal, retrospectively removed the illegality of producing mines of private/state government-owned companies with no established criminality in the allocation process.
Get Unlimited Access to The Economic Times
