Preference proposed for companies to set up end-use projects within coal bearing states: Jaiswal STATES ASKED TO SET UP COORDINATION COMMITTEES TO REVIEW PROGRESS OF ALLOCATED BLOCKS

The Minister of State for Coal(I/c) Shri Sriprakash Jaiswal has said that the Government propose to incorporate through a provision in the modalities of option of coal blocks for captive use which would give preference to a company that proposes to set up the end-use industry within the State in which the coal block is located. Chairing a meeting of the State Ministers in charge of Mining and Geology, here today, Shri Jaiswal informed that the preference is proposed if a bid is within 5% of the highest bid and the company is willing to match the highest bid for that block. This he clarified would adequately protect and promote the interest of the coal bearing states. Shri Jaiswal however emphasized that the coal being a precious national resource, its exploitation and use should be in the larger interest of the whole country. The Minister seeking support and cooperation of the State Governments reiterated commitment of the Central Government to adopt a system for allocation of coal and lignite blocks which is transparent, fair and objective.

The Minister also urged the States to set up Coordination Committee at the State level under the chairmanship of Chief Secretary to review the progress of allocated coal and lignite blocks as well as the associated end-use projects falling within the respective States. He offered to depute senior level officers from his Ministry to participate in such meetings.

Following is the text of the opening address of Shri Sriprakash Jaiswal, Union Minister of State (I/C) for Coal at a meeting with the State Ministers in-charge of Mining and Geology in New Delhi today:

“I have great pleasure in welcoming you all to this important meeting. I am really grateful that you have accepted my invitation and have taken time out to participate in the meeting which has been specially called for discussion on the recommendations of the Standing Committee on Steel and Coal on the Mines and Minerals (Development and Regulation) Amendment Bill, 2008. As you are all aware, through this Bill the Central Government is seeking to introduce a system of auction through competitive bidding for allocation of coal blocks for the purpose of captive mining. This would be a very progressive measure that would bring about greater transparency and objectivity in the process of allocation of coal blocks. I have no doubt that the States will also lend their willing support in adopting this progressive measure.

All of you are aware of the developments in the coal mining industry. For very cogent reasons, the Central Govt. took the momentous decision of nationalising the coal mines. The nationalisation was done in two phases, firstly, the coking coal mines in 1971-72 and then, the non- coking coalmines in 1973. Under the Coal Mines (Nationalisation) Act, 1973, coal mining was mostly reserved for the public sector. However, through subsequent amendments and notifications, captive mining of coal for some specified end uses was permitted. Thus, at present, a company engaged in production of iron and steel, generation of power, production of cement, coal gasification and coal liquefaction can carry on coal mining in India for captive consumption only.

As per the provision of the Coal Mines (Nationalisation) Act, 1973, the State Government companies can also carry on coal mining for commercial purposes. However, under a policy enunciated in 1979 by the Central Government, many restrictions were imposed on coal mining by the State Public Sector Enterprises (SPSEs). This was reviewed by the Central Government and a more liberal policy framework was laid down in 2001, which placed the SPSEs at par with Coal India Limited (CIL).

Thus, till May 2009, the Ministry has allocated 201 coal blocks with geological reserves of about 45 billion tonnes to Govt. as well as private sector companies for both captive and commercial mining. Out of these, 97 coal blocks have been allotted to Govt. companies with geological reserves of about 27 billion tonnes and 104 coal blocks have been allocated to private companies with geological reserves of about 18 billion tonnes.

With the economy growing at a rapid pace, the demand for coal has also been rising at an equal pace. This has led to an increased demand for coal blocks, as this provides an assured source of supply and also enables the end user companies to regulate the cost of a major raw material i.e. coal.

With progressive allocation of coal blocks, the number of coal blocks available for allocation has been declining, while the number of applicants per block has been increasing, as the demand for coal keeps rising. This is borne out by the fact that when about 38 coal blocks were offered for captive use in 2006, 1422 applications were received by the Ministry. This has made the selection process very difficult and vulnerable to criticism on the ground of lack of transparency and objectivity. Therefore, there is an urgent need to bring in a process of selection that is not only objective but also demonstrably transparent. Auctioning through competitive bidding is a time-tested and globally accepted mechanism for such purposes. On this, a proposal worked out after consultation with some of the stakeholders was circulated in February 2005 to the major coal producing States for their comments. Again, in a meeting convened in the PMO on 25.07.2005, the proposal firmed up by the Ministry of Coal was discussed where representatives from the State Governments were also invited.

It was with these objectives in view that a Bill to amend the Mines and Mineral (Development & Regulation) Act, 1957 seeking to introduce competitive bidding system for allocation of coal blocks for captive use was introduced in the Rajya Sabha on 17.10.2008. It was referred to the Standing Committee on Steel and Coal for detailed examination. The Standing Committee has since submitted its report on 19.02.2009 to the Parliament.

It is to be noted that the system of competitive bidding shall be adopted only for the blocks to be allocated for captive use. The allocation to Govt. companies under the government company dispensation or to power projects awarded through the tariff based bidding process would not fall under the purview of new system of competitive bidding.

I understand that there are some apprehensions that the role of the State Governments would get diluted once the auction system is adopted for allocation of coal blocks. We need to recognise that as per the Constitutional scheme and in terms of the provisions of the Coal Mines (Nationalisation) Act, 1973 and the Mines and Minerals (Development and Regulation) Act, 1957, the development and regulation of coal resources vests largely within the domain of the Central Government. Even now, allocation of coal blocks is made by the Central Government and for grant of prospecting license and mining lease also, prior approval of the Central Government is a pre-requisite. Therefore, the introduction of auction system for allocation of coal blocks is not likely to alter this position in anyway.

The States have also this concern that the value addition should be done within the State where the coal block is located. You would agree that coal is a very precious national resource and its occurrence is determined by the geological process of evolution. Its usage, therefore, cannot be entirely restricted to its area of occurrence. It has to be exploited and used optimally in the larger interests of the whole country. However, in recognition of the concerns of the coal producing States and in order to encourage value addition within the State, we propose to incorporate a provision in the modalities of auction that preference would be given to a company which proposes to set up the end use industry in the State in which the coal block is located, if its bid is within 5% of the highest bid and the company is willing to match the highest bid for that block. This should adequately protect and promote the interests of the coal bearing States.

A concern has also been expressed from certain quarters that in the auction process, coal resources might be cornered by bigger players to the disadvantage of relatively smaller players. We need to recognise that captive coal mining involves investment in the linked end use projects as well. This calls for significantly large capital investment. The relatively bigger players would be able to mobilise the requisite capital resources of this dimension. Therefore, it makes good economic sense to encourage the participation of major players in this venture so that the coal blocks and their associated end use projects get developed expeditiously and the country stands to derive the benefits from its rich resource wealth.

In the strategy worked out by the Planning Commission to enhance coal production, the new players are expected to play a very crucial role. It is anticipated that by the end of the XI Plan, the contribution from them would be of the order of 104 million tonnes, which would increase to more than 300 million tonnes by the end of the XII Plan. When they get the coal blocks through auction, they would have a more direct stake in terms of premium they would have to pay by way of bid amount, and this, in turn, would motivate them to develop the blocks more expeditiously. This would generate tremendous economic activity, which would give a big boost to the economies of those States.

I am also given to understand that in respect of certain minor minerals, some of the State Governments have already adopted the auction system, and this has yielded very good results to them. We hope to derive similar benefits from this process.

I am happy to inform that the receipts generated by the auction would accrue to the State Government concerned. The State Governments would be able to utilise the revenue so generated for undertaking developmental works in the coal producing areas.

I would also like to share some of my concerns about the coal blocks allocated so far. The progress in developing these blocks is not very satisfactory. So far only 25 coal blocks have come into production. The progress in respect of coal blocks allocated to the State PSUs is even less encouraging. The major constraints being faced by the allocatees are delays in (i) land acquisition, including forest land and resettlement and rehabilitation (R&R) issues, (ii) environmental clearance including NOC from local Panchayats, public hearing etc. (iii) forest clearance, (iv) grant of prospecting license, and (v) mining lease. The State Governments have a key role to play in all these. In this regard, may I request you to set up a Coordination Committee at the State level under the Chairmanship of Chief Secretary to review the progress of allocated coal/ lignite blocks as well as the associated end use projects falling within your respective States. We would be happy to depute senior level officers from the Ministry to participate in those meetings.

In conclusion, I would reiterate the commitment on the part of the Central Government to adopt a system for allocation of coal and lignite blocks, which is demonstrably transparent, fair and objective. The fact that an Amendment Bill for this purpose has already been introduced in the Parliament is a confirmation of that commitment. We have always sought to take the States also on board in this endeavour. The States were consulted before the Amendment Bill was finalised, and their concerns were addressed. This is one more opportunity for all of us to work jointly towards ushering in a system of grant of mining concessions that would enhance the credibility of both the Governments at the Centre as well as in the States. As I had stated earlier, coal is a precious national resource, and its allocation should be done in an optimal manner, through the inter-play of market forces. The proposed measure is a step in that direction. I look forward to your support and cooperation in this regard”.

RCJ/ls