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Coal contradiction

The onus is on the Rajya Sabha to iron out the coal bill’s infirmities

Written by M R Madhavan |
Updated: December 20, 2014 8:07:43 am
The Supreme Court had cancelled the allocation of 204 coal blocks, out of a total of 218 allocated since 1993. The Supreme Court had cancelled the allocation of 204 coal blocks, out of a total of 218 allocated since 1993.

The Coal Mines (Special Provisions) Bill, 2014, has been passed by the Lok Sabha and will next be discussed in the Rajya Sabha. This bill replaces an ordinance issued in October. The Supreme Court had cancelled the allocation of 204 coal blocks, out of a total of 218 allocated since 1993, on the grounds that the allocation process of the screening committees was arbitrary and illegal. Further, the court said that the cancellation of the 42 coal blocks that were operational or near-operational would be effective from March 31, 2015.

This bill has the following main features. In Schedule I, all the 204 cancelled blocks are listed. Of these 204 blocks, the 42 operational ones are mentioned in Schedule II and a further 32 in Schedule III. The bill restricts the allocation of Schedule II and Schedule III blocks to government or private companies that are engaged in any of the specified end-uses: power generation, coal washing as well as iron, steel and cement production. Other blocks may be allocated to a government or private company for consumption, sale or any other purpose specified in the mining lease. The above allocations can be made only through auction by competitive bidding. The bill also allows the government to allot a coal mine without bidding to a government company or to an electricity generator that has been awarded a power project on the basis of competitive bids for tariffs. Given that this bidding mechanism may lead to a change of ownership, the bill provides for a process to transfer the assets and compensate the existing owner.

Given the shortage of coal in the country, one can argue that there is an urgent need to take action to ensure that the 42 coal blocks do not stop production and that other coal blocks can begin production. The first question is whether this objective needs legislative action or can it be executed under current laws. The Coal Mines (Nationalisation) Act, 1973, permits a mining lease to be granted only to the Central government or its undertakings (or subleases to be granted by them), or to private companies that have any of the four specified end-uses: power generation, coal washing, iron and steel production or cement production. The Mines and Minerals (Development and Regulation) Act, 1957, was amended in 2010, mandating allocation to such private companies to be made only through auction by competitive bidding.

Given these provisions, existing laws permit re-allocation of the cancelled blocks to private companies engaged in the four specified end-uses through competitive bidding. The main reason for the cancellation of allotments by the court was that the allocation process was illegal and arbitrary. If the reallocation were to be done through competitive auctions, there would be no violation of any existing law. That said, one would still need a process for the transfer of assets.

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However, if the intent is to permit private companies to operate in this sector without end-use restrictions then existing laws would need to be amended. This bill enables such change. However, when other sectors such as telecom and insurance were opened up to private-sector participation, independent regulatory bodies (such as the Telecom Regulatory Authority of India and the Insurance Regulatory and Development Authority) were created to ensure orderly development of the sector and to discourage oligopolistic behaviour. This bill does not create such a regulator.

There are some ambiguities in the bill that may need to be resolved to avoid potential litigation. For example, the bill allows power-generating companies that have bid on the basis of tariffs to be allotted coal mines but it does not restrict them from selling the coal. The bill also makes amendments to the Coal Mines (Nationalisation) Act and the Mines and Minerals (Development and Regulation) Act in order to permit private-sector participation in coal mining, without end-use restrictions. However, it does not delete the existing section of the Coal Mines (Nationalisation) Act that expressly prohibits such participation. Thus, this act will now have two sections that contradict each other.

The coal sector has socio-economic implications on several dimensions. Over half the power generated in India is coal based, and given our power shortage and rising energy needs for both industrial and domestic use, increasing coal production is important. India imports billions of dollars of coal every year, adding substantially to the current account deficit. The coal sector employs about four lakh persons.


Coal mining can be land intensive and the development of mines can lead to the displacement of people. Coal mining and usage also affect the environment and have adverse implications for climate change. Therefore, it is important that any change in the policy on coal mining and usage be undertaken after careful consideration. The onus is now on the Rajya Sabha to consider all its implications before passing the bill.

The writer is co-founder and president, PRS Legislative Research, Delhi

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First published on: 20-12-2014 at 12:18:43 am
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