Opinion Hauled over coal

In a scathing judgment on Monday, the Supreme Court, unsurprisingly, termed all allocations of captive coal mines by the screening committee since its first meeting in 1993 and under the “government dispensation” route — 216 in all — illegal. The court’s observations should deeply embarrass both the UPA and the NDA under whose watch an allotment process described as suffering from the “vice of arbitrariness” went on. The court has rightly concluded that the screening committee has been an inconsistent, non-transparent and ad hoc mechanism. For instance, cases of mines being awarded to companies that were not engaged in iron, steel, power or cement production — the only private end-users who can legally be allotted mines under the Coal Mines (Nationalisation) Act — abound. Similarly, allotments, some of which were not even advertised beforehand, seem to have been made irrespective of the power ministry and relevant state government’s opinion — such was the committee’s discretionary power. Certain state government undertakings had signed joint venture agreements with private players, who then utilised the awarded mine. The SC judgment, a part of its larger drive to clean up natural resource allocation, is immensely welcome.

For the moment, the court has stopped short of scrapping the allotments. Given the tremendous potential repercussions of an en masse cancellation, careful weighing of a future course of action is wise.

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Giving current leaseholders the right of first refusal on a future auction price, for instance, may be a way forward. According to some estimates, Rs 1,00,000 crore of bank credit rides on the fate of just the power projects with captive mines. Past experience with blunt judicial instruments, like the iron ore mining ban, warrants a more cautious approach this time.

But this is also a moment to move forward, and one that ends uncertainty. Here on, the principle of competitive bidding — either for revenue maximisation or price minimisation — must be the norm for natural resource allocation. Most importantly, the monopoly of Coal India Limited needs to be revisited. No power producer, who lacks the core competence of a mining company, wants to have to produce its own coal. Power producers were allowed to operate captive mines in the early 1990s precisely because Coal India was unable to step up to the task. It is high time the government amends the law to allow merchant miners into the sector.