coal blocks

In this article, Akshita Rishi who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses the rules that govern the allocation of Coal Blocks in India.

Introduction


We often talk about conservation of our natural resources as they are limited in nature. Natural resources include water, gold, iron and fossil fuels like coal and petroleum. These natural resources are of utmost importance for our living. As here we are discussing about coal, so let us understand the uses of coal which are as follows: –

  1. Electricity Generation
  2. Steel Production
  3. Cement manufacturing
  4. Liquid Fuel

We can clearly understand the importance of electricity, steel, cement in our day to day lives. Thus, allocation of coal blocks should be transparent as well as on well defines rules, guidelines, orders, notifications etc. which are set up by the ministry.

Now let us understand this topic in detail. Regulations of Coal, Coal Mines and Coal Blocks in India.

Regulations of Coal, Coal Mines and Coal Blocks in India.[1]

Government of India – Ministry of Coal which is 2008: certified ministry has comprehensively taken the responsibility for determination of various policies and strategies which are used to explore and develop coal. The authority is used to lighten reserves, and most importantly sanction high valued important projects and other such related matters.

Coal India limited and its subsidiaries, Neyrchi Lignite Corporation are such public-sector undertakings which exercise the key administrative control of the ministry. Moreover, ministry of coal also has a joint venture with government of Andhra Pradesh known as Singareni Collieries Company Limited in which government of India holds 49% equity shares and rest 51% is in the hands of Government of Andhra Pradesh.

Meaning of Coal Block [2]

Coal Block means the length of layer of coal beneath the surface of earth.
Denotation:- Generally, it is denoted in square kilometres. Example:- 10 square km of Raniganj (India).

Captive Coal Mining [3]

It means, mining with a condition, that the coal mined can specifically be used in a said industry for which the allocation or auction of the coal block has been done.

Reason: – The reason behind this was to keep coal prices low as, after the enforcement of the Coal Nationalisation Act (1973), coal mining became a monopoly. Thus, to curb it and improve the compliance along with adequate safety norms captive coal mining was introduced. This also reduces government interventions, thus ensuring stable supply chain for prominent industries indulged in power generation etc.

Any surplus coal is compulsorily sold to coal India at a notified price.

Allocation of Coal Blocks [4]

Before and after 1993

  • No specific criteria about allocation of captive coal blocks were enforced till 1993. However certain amendments were introduced in the Coal Mines (Nationalisation) Act, 1973 after which captive coal mining was allowed. A screening committee was also setup by the Ministry of coal so as to give valuable suggestions and recommendations about the allocation of captive coal mining.
  • To private companies, the allocations of coal blocks was by or through the screening committee. In case of government companies, Ministry directly were to make allocations of coal blocks. According to statistics, under COAL MINES(NATIONALISATION) ACT 1973 around 218 coal blocks were allocated, between 1993 and 2011 to both public and private companies.

2014 Supreme Court Judgement

  • Controller and Auditor General of India(C&AG), in August 2012, released a report regarding allocation procedure of coal blocks and major drawbacks in this process till date. He recommended that this process should be more transparent. He also suggested that competitive bidding can make a more objective approach in allocation of coal blocks.
  • A public interest litigation (PIL) was filed in Supreme Court in September 2012. The basis of this PIL was the above-mentioned audit report by C&AG. In September 2014, the petition suggested to cancel the coal blocks saying that they are either arbitrary, illegal or unconstitutional. A judgment was passed by the Supreme Court declaring the cancellation of 204 coal blocks out of 218 coal blocks, thus illegalising allocations made through Government and screening committee in 1993 and onwards.

The following grounds were disclosed for such act,

  1. It was said that the procedure followed by the Screening Committee was irrational and arbitrary.
  2. There are no specific or fixed criteria for selection of companies.
  3. Under the Coal Mines (Nationalisation) Act 1973, the procedure followed by government regarding allocations of all blocks was held impermissible.

Effect of this judgement

Among total 218 blocks

  • 40 coal blocks were under productions out of which 37 coal blocks cancelled.
  • 6 coal blocks were in a process to start production out of which 5 coal blocks were cancelled.

2015 Bill

As a lot of concerns were raised due to a number of cancellations which further resulted in shortage of power. Thus, the bill provided following details related to allocation of coal blocks:

  1. It Primarily focused to allocate all those cancelled coal blocks which were declared illegal in the Supreme Court judgement.
  2. It provided details for the subsequent process of auction.
  3. As prior allottees needs to be compensated, so the amount of compensation was declared.
  4. The due process of transfer of mines.
  5. The specific authorities and their details who will further carry out the process of auctions.

Note

The Coal Mines (special provisions) Rules 2014 were notified in December 2014 specifying the eligibility and compensation of prior allottees.

Allocation of Coal Blocks through 2015 Bill

The bill creates three categories of mines. i.e.

Schedule I – It consists of all 204 mines which were cancelled by the honourable Supreme Court.

According to the bill, the allocation of these mines could be either through public auction or public allocations.

Public auction means bidding by any government, private or joint venture company. They can utilize that coal either for sale or their own consumption or any other purpose which has been particularly specified in their mining lease.

Public allocation on the other hand means allocation of specific coal mines to any government company or any other company who has been awarded a power plant project through competitive bidding. However, in this case also, the coal mined can be used either for sale or personal consumption. However, no specific procedure has been laid down in case of private companies.

General conditions/Rules for allocation of Coal Blocks [5]

  1. There should be legally enforceable supply contract or supply agreement between the ministry and competent party. This contract is for the lifetime i.e. it is made for/till the end of the life of the mine.
  1. Moreover, the coal produced should not replace any coal linkage which is given to the applicant.
  1. The allotted block of coal can only be used for their own specific use i.e. for captive use.
  1. It is said that if the coal is used for betterment of any inferior grade coal then the middling thus generated should only be used for power generation that to only in self owned power plant.

In case of any surplus coal (rejects) middling etc. would be in accordance with the prevalent policies and government instructions at that time.

  1. The coal production for the captive coal blocks shall commence within 36 months(in case of forest land, it is 42 months) for the allocation in OC mine and 48 months from the date of allocation in UG mine (54 months in case of area which fall under forest land) Any modification in the end use project and regarding the development in coal mine shall be submitted to the ministry within 3 months from the date of allocation.
  1. With respect to fully explored blocks, the company shall buy the geological report within 6 weeks from the date of allocation from CMPDIL.
  1. In case of unexplored coal blocks, the company to whom blocks are located should apply for a prospecting license. This license should be applied within 3 months from the completion of date of issue. The geological report shall also be prepared within a period of 2 years from the date of issue of prospecting license.
  1. The company is also under obligations to submit a bank guarantee which will be equal to one year’s royalty amount. This amount will be based on mine capacity as assessed by CMPDIL. However, the Bank Guarantee amount shall be modified and such modified amount will be based on the rated capacities of the mine.
  1. The company is also required to submit a mining plan which will be sent to the competent authority for approval under the Central Government. The submission shall be made within six months from the date of this letter but the duration mentioned can be implemented only in case of explored blocks.
  1. In case of unexplored block, within two years, the approval of mining block shall be made by the competent authority under the Central Government, 6 months from the date of issue of the letter of allocation.
  1. Distribution of bank guarantee will be as follows: –

50% shall be linked to the development of captive coal block and the other 50% will be allocated to the guaranteed production.

The above-mentioned bank guarantee will be enclosed as follows,

  • An annual review of progress shall be conducted by the allocatee company, failing to which, proportionate amount shall be enclosed and subtracted from the above-mentioned bank guarantee.
  • On the commencement of production, if any fall off is seen in the production of coal then a certain percentage of bank guarantee amount shall be subtracted in that specific year. This amount will be equal to a percentage of deficit in productions. It will be with respect to the rated capacity of the mine.
  • It is the duty of the allocattee company to see to it that the validity of bank guarantee exists till the mine compass its rated capacity excluding the case of exhaustion of bank guarantee. Any lapse on this count will give rise to cancellation or de-allocation of lease.
  1. Except for captive mining purpose, coal should not be delivered, sold, transferred or disposed off with prior approval of the specific authority under Central Government.
  1. The whole procedure of captive coal block mining will be conducted with all the applicable statuses/ rules /orders/ which are compulsorily required by the ministry.
  1. If the state government is seeking previous approval to get mining lease then it is required to submit a draft containing above mentioned conditions. The final mining lease shall be rated by the Central Government. Any inconsistency in the draft will lead the mining deed to null and void without effect.
  1. Allocation of coal block will lead to cancellation in the following cases: –
  • If implementation of their end use is unsatisfactory.
  • The progress regarding development in the coal mining project is unsatisfactory
  • The above-mentioned condition i.e. point 1 to point 11 are reached.

However any de-allocations or cancellation of mining lease will not create any liability to the government.

  1. Regarding permission for mining rights and related matters the company needs to approach state government to attain geological report, the company will need to contact CMPDIL.

Companies in Cal block Race [6]

In February 2015, out of 176 companies, 134 Companies were technically sound enough to qualify for making financial bids in 21 coal producing mines. Some of the major and popular companies among the above-mentioned 134 companies are: –

  • Adani Group
  • Jindal Steel and Power Limited
  • Balco
  • Essar power
  • GMR Chhattisgarh Energy Limited
  • GVK Power
  • JSW Energy
  • Reliance Cement Company Limited
  • Ambuja Cement
  • Hindustan Zinc
  • Sesa Sterlite and many more.

Guidelines for allocation of captive blocks in India [7]

  1. Allocation of coal blocks which results in captive mining can be made through an application which shall be made in 5 copies and accompanied with following documents: –
  • 1 copy of the certificate of registrations of the company which is a conclusive proof that the company is a registered company under section -3 of the Companies Act 2013. The certificate should be signed and stamped by the qualified Company Secretary of the Company.
  • 5 copies of the document showing the identity of the person who will be acting on behalf of the company in dealing with and all the matters related to allocation of coal mining. It is necessary that the Company Secretary of the Company has duly signed and stamped the document.
  • 5 copies of the certified copy of memorandum of association and articles of association of the applicant company.
  • 5 copies of the audited annual accounts of the applicant company.
  • 5 copies of the project report of the end use of plant. In case a lender has appraised it, then the applicant company is liable to submit the appraised report.
  • 5 copies of the bar chart who have proposed the coal mining development project. Also, a detailed schedule of implementation of milestones of the prospective end use project.
  • In case of unexplored blocks, a schedule which will be prepared in detail is required i.e. schedule of exploration of milestones. But it is to be noted that overall timeframe should not go beyond the prescribed normative time ceiling.
  • 5 copies of the scheme which relates to expandable containing carbon like middling, tailings, fines, rejects etc. from the washer are required to be put forward before the authority.
  • A demand draft is also required to be submitted in favour of PAO, Ministry of coal amounting ₹ 10,000 payable at New Delhi.
  • All the details as filled in the Application form is to be provided in a soft copy format i.e. specifically in MS Excel format in a CD with the application

Applications without above-mentioned documents will be treated as incomplete and eventually can or will be rejected.

  1. In case of fully explored blocks, the required geological data can be collected from CMPDIL, NLC or any concerned state agency on payment of certain nominal charges. However, the total amount of exploration and also of geological report will be reimbursed within 6 weeks from the date of issue of allotment letter.
  2. Supervision of CMPDIL becomes mandatory if only regionally exported blocks are provided for allocation in case of thorough exploration in those blocks are required to be done.
  3. The screening committee can permit to replace linkage with coal produced from captive coal block but with a condition that it will safeguard the interest of CIL and its subsidiaries.
  4. At a certain amount or price which shall be determined by the government, disposal of production of the captive coal block mine can be done. This permission for disposal is allowed to the local CIL subsidiaries but only during development phase.
  5. No action can be taken to promote scientific mining of larger blocks into smaller blocks. Only natural sub-blocks can be formed.

Coal allocation Scam [8] & [9]

Popularly known as “COLGATE” came to light in 2014 when the Comptroller and Auditor General of India accused Government of India for inefficiently allocating coal blocks in the period of 2004-2009. When this matter was directed to the honourable Supreme Court, it declared all those coal allocations as illegal.

A special three-judge bench comprising
– Chief Justice R.M Lodha
– Madan B Lokur
– Kurain Joseph

termed all the coal allocations of mine as intransparent.

Here are some key highlights of this landmark judgement

  • It mainly comprised of allocating coal blocks through competitive bidding to corporates, companies and private sector under UPA government. However, according to Comptroller and Auditor General of India (C&AG) the due procedure of bidding was not completely followed. Also, there were many discrepancies in reporting.
  • Approximately 194 blocks were allotted to private sector companies through intransparent process of private bidding as mentioned above.
  • According to C&AG, the total approximate losses which the Government would bear were predicted to be around 10 lakh crores. However, ₹1.76 lakh crores losses were shown after C&AG’s report was presented in the parliament.
  • C&AG report clearly stated that 25 biggies of industrial sector including Tata group, Jindal Steel, Laxmi Mittal, Essar Group, Vedanta etc. made a lot of money or in other words we can say that they gained a lot due to improper bidding process between 2004 and 2006.
  • A major highlight by first post stated that during this time i.e. between 2006 and 2009 as the portfolio was held by our former prime minister Manmohan Singh, the estimated loss in the reserves was around ₹40 billion tonnes.
  • In 2012, a complaint was lodged by Bhartiya Janata Party which brought Central Bureau of Investigation (CBI) into probe, on the orders of Central Vigilance Commission (CVC). Also, during the same time Income Tax Department too began its probe.
  • A key role was played by parliamentary standing committee during April 2013 as it nullified the allocation process which took place between 1994-2009. It even asked to setup an investigation process to deeply look into the matter and on those companies involved in this scam.
  • In 2013, CBI took a major step by filling FIRs against top notch industrialists including Naveen Jindal, Desari Narayana Rao, Kumar Manglam and also former coal secretary P.C. Parakh. It was said that if the former secretary will be declared guilty then even former Prime Minister Manmohan Singh could be declared guilty as well.
  • In July 2014, Supreme Court decided to set up a special CBI court which will only conduct trials of all the cases regarding allocation of coal. Also, during this period, cases against former secretary P.C Parakh and former prime minister Manmohan Singh were taken back by CBI.
  • On 25th August 2014, the Supreme Court after a lot of investigations declared all coal allocations between 1993 and 2010 as nullified and thus illegal. Major observations were made by the screening committee from July 14, 1993 in 36 meeting. On their recommendations government dispensed this route of allocations of coal blocks due to arbitrations and legal flaws. Also, according to this judgement, this scam resulted in heavy suffering of public interest as well as common good.

    Reallocation of Coal Blocks in India [10]

    Last year, all the entities owned by state government were re-allotted their coal blocks which they lost during the Supreme Court judgement.
    Following are the states which got permission to resume their captive coal mining,
    a) West Bengal
    b) Uttar Pradesh
    c) Bihar
    d) Karnataka
    e) Telangana
    f) Jharkhand
    g) Chhattisgarh
    h) Odisha
    i) Gujarat
    j) Punjab

  • West Bengal Power Development Corporation received it’s six coal mines back, Bihar and Uttar Pradesh – the two states which need power generation got one coal block each back. Rajasthan had two blocks but received one back. Even Gujarat and Punjab got their one block of coal for power generation.
  • Chhattisgarh has two of the richest coal blocks. One of which is Gare Palma-II, went to Maharashtra State Power Generation Company and the other Gare Phalma-III was allotted to Chhattisgarh State Power Generation Company.
  • Even the re-allotment procedure is done after thorough technical evaluation of both the states and the entities. Also, the usage of the coal blocks is well defined as per the rules laid down under captive coal mining.

    CONCLUSION

    Thus, we can very well conclude that the allocation process of the coal mines is not only tough but also very systematic and transparent. In case of any fallout, strict actions are taken against all those entities who are indulged in wrongful acts like the infamous coal allocation scam or Coalgate.

    REFERENCES

[1] Ministry of coal official website- http://coal.nic.in/content/about-ministry

[2] Wikipedia –
https://www.google.co.in/?gfe_rd=cr&ei=bpy0WL6VDKLT8geO47PgDA&gws_rd=ssl#q=difference+between+coal+block+and+coal+mine+&*

[3] Online blog post-
https://www.quora.com/What-is-the-logic-behind-the-system-of-captive-coal-mining-with-reference-to-the-recent-coal-block-auctions-by-the-Indian-Government

[4] A blog post –
http://www.prsindia.org/theprsblog/?p=3487

[5] Ministry of coal official website- http://coal.nic.in/content/capallocond

[6] The times of india official website –
http://timesofindia.indiatimes.com/india/134-companies-enter-final-coal-block-race/articleshow/46224485.cms

[7] Ministry of coal official website –
http://coal.nic.in/content/cap06capguide1

[8] Wikipedia-

https://en.wikipedia.org/wiki/Indian_coal_allocation_scam

[9] Online news website –
http://www.dnaindia.com/india/report-11-things-you-need-to-know-about-the-coal-block-allocation-scam-2013511

[10] Online news website –
http://www.business-standard.com/article/economy-policy/coal-block-re-allocation-states-psus-get-back-lost-mines-115032500025_1.html

 

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