Event Reports

Can coal block auctions be the path to modernise coal mining?

2015
Dec
22

Unless commercial mining is allowed, the coal sector is unlikely to see modernisation. This was the consensus view of the participants at a roundtable discussion on “Can Coal Block Auctions be The Path to Modernise Coal Mining?” organised by Observer Research Foundation on November 23, 2015.

The participants also agreed that the Indian coal may become less competitive compared to imported coal if the sector does not modernise.

Mr. Sunjoy Joshi, Director of ORF, said that policymaking should be aligned with global market developments.

Opening the discussion, chair Dr. Saumitra Chaudhuri, former Member of the Planning Commission, posed the question as to how India could have a transparent policy of engagement with the private sector that is not open to criticism.

Mr. Nitin Zamre, MD, ICF International described the key aspects of the auction process and, talked briefly about the overall impact of the coal auction policy on the coal sector as well as the consuming sectors.

Mr. D. L. R Prasad, President (Mining), Adani Group asked if the auction process had been tested anywhere in the world and commented that the auction process was designed to fail.

He also highlighted the challenge of attracting young talent for operating coal mines.

Mr. D. V. Kapur, former chairman, NTPC, observed that the issue of efficiency and productivity in the coal sector does not receive the attention that they deserve.

Mr Kapil Dhagat, Executive Vice President of JSPL, commented on how three coal blocks, which were of very good size capable of producing 15 to 20 million tonnes each, were divided into a number of coal blocks after the 1993 captive coal policy on the ground that customers are not available. He observed that the eventual amalgamation of the blocks caused confusion that was not desirable for the coal industry.

Mr. B. Parathasarathy, CEO (India Operations), Anglo American Plc, said that the there was no evidence that the current auctions framework could lead to modernization of coal mining. He said that as long as the qualification of a bidder depends upon whether he owns a power plant or a cement plant and not expertise in mining in order to mine coal, auctions will not lead to modernisation.

Mr. Chanakya Chaudhary, Group Director (Corp. Comm. & Regulatory Affairs), Tata Steel concurred with the view that auctions are not a path to modernisation of the coal sector and observed that the auctions were primarily designed to improve transparency and for price discovery. He said that though there had been some gain in transparency but there was no progress on price discovery.

Mr. Upendra Kumar, Advisor, Aditya Birla, felt that captive mining which led to the auction process was an antithesis of efficiency. He said that auctions for captive mining was not practised anywhere in the world and that this method of private participation was devised only to overcome opposition from trade unions.

Mr. Susmit Pushkar, Khaitan & Company, highlighted the fact that in judgements over allocation of natural resource exploitation rights the primary concern addressed had been that of government revenue and not efficiency.

Mr. Vivek Bharadwaj, Joint Secretary, Ministry of Coal, said that coal auction policy was an endeavour to create a market where none existed. He also said that under section 20 and 21 of the Act swapping of mines was permitted and that this would eventually facilitate commercial mining.

Mr. Alok Perti, former Secretary, Ministry of Coal, pointed out that the MMDR Act was not clear on how a choice will be made when many private players seek a licence to mine. Mr. Anil Razdan, former Secretary, Ministry of Power, said that when more attention is paid to the political process, economics and efficiency are compromised. Mr. C. Balakrishnan, former Secretary, Ministry of Coal, said that CMPDI was asked to identify mines that could be allocated to the private sector to increase production.

The objective of the discussion was to facilitate a discussion on how have auctions performed compared to allocations in terms of (a) efficiency in transfer of rights (2) progress in development of mines and progress in modernisation of the coal sector. This was a follow-up discussion of the roundtable “Ramping up Coal Production: Policy Pathways” held on February 18 this year.

(This report is prepared by Ashish Gupta, Associate Fellow, Observer Research Foundation, New Delhi.)