Coal news and updates

Coal penalty waiver for Bengal

The Narendra Modi-government has sprung to the rescue of Mamata Banerjee's cash-strapped regime by waiving a penalty of Rs 1,500 crore that Bengal's state-run power utilities would have had to pay for the right to renew coal mine allocations that were scrapped by a Supreme Court order last September.

In its order, the apex court had declared over 200 coal mine allotments under various regimes since 1993 as flawed and ordered the allottees to pay a penalty of Rs 295 per tonne for the coal they had extracted from the mines that had been pressed into production.

However, the Modi government came out with the Coal Mines Special Provisions (Second Ordinance) 2014 - superseding an earlier one issued on October 21 - which put the onus of paying the penalty on the joint venture that the state utilities had formed with private partners to whom the mines were leased as they didn't have the expertise in mining.

The tweak incorporated in the latest ordinance means that the state utilities will be eligible for fresh allotments of the mines they held earlier.

The process of allotting the coal mines to state-run utilities is expected to take place this week with Bengal likely to get five blocks.

This is a win-win for both the Bengal government as well as power consumers in the state who might have otherwise faced the prospect of severe power outages if the allotment of the coal mines to state-run utilities fell through because of their inability to pay the penalty.

A back-of-the-envelope calculation shows that West Bengal Power Development Corporation Ltd (WBPDCL) would have had to fork out Rs 1,500 crore by way of penalty, which it might have found unable to pay without some budgetary support from Bengal finance minister Amit Mitra.

Seeking partners

Most of the state-run utilities had formed joint ventures (JV) in which they held just a 26 per cent stake with the rest going to the private partner.

Since WBPDCL did not have any expertise in mining, it had formed a joint venture with Calcutta's private coal miner Emta group, which held 74 per cent.

The state-run utilities were required to pay the penalty by December 31 last year. While WBPDCL did not make the payment, state utilities in Punjab and Karnataka - which had similar arrangements with Emta - did.

"Legally even Punjab, Karnataka and Bengal are not required to pay the penalty of Rs 295 per tonne as the legal entities that defaulted weredifferent," coal secretary Anil Swarup has told The Telegraph.

He said the Centre's main objective was to increase the availability of coal for power generation and the ordinance had been framed keeping that objective in mind.

"We don't think that the allotment (of coal mines) would be an issue for Bengal. The penalty would be applicable on the owner of the mining lease, which in this case is the joint venture company," said a senior official of WBPDCL.

"There is no need for the state government to make any payment. Whatever needs to be paid will have to come out of the joint venture," said the official.

An explanation to clause 3n in the ordinance specifies: "In case a mining lease has been executed in favour of a third party, subsequent to such allocation of Schedule 1 coal mines, the third party shall be deemed to be the prior alotteee." This is the most significant change in the revised ordinance and wasn't there in the October 21 ordinance.

The amendment is designed to help the state-run utilities in Bengal, Punjab, Karnataka - all of which had formed joint ventures with the Emta group in which they held just 26 per cent.

Rider on JV

The piquant situation has arisen because although the mines had been allotted to the state-run utilities, the lease deeds were signed in favour of the joint venture companies.

This was done after taking concurrence from the Centre, which allowed leases in favour of a third party other than the original allottee under the provisions of Coal Mines (Nationalisation) Act, 1973.

But a rider was tagged on: the JV could not use the coal for any purpose other than for which it was allotted. This restrained the JV from diverting the coal to some other project or selling it in the open market.

Sources said the Bengal Emta JV was in no position to assume the sudden burden that is being shoved on to it. The private partner says it isn't ready to shoulder the burden - and claims it has strong legal advice to support its position.

However, private power utilities such as CESC, which supplies electricity in Howrah, are not so lucky. CESC coughed up nearly Rs 950 crore as additional levy to be able to participate in the auction.

The ordinance had stipulated that no "prior allottee or its promoter will be allowed to participate in the auction if they do not pay up the levy".

While the state-run utilities are expected to be allotted the mines that were granted to them under the old dispensation, the private players will have to participate in a competitive bidding process to win back the mines they once ran.

If this rule had applied in the case of allotments, WBPDCL would not have been eligible to get a block.

The upshot of all this is that power consumers in Bengal, who are outside Calcutta, will not have to pay an additional power tariff. Consumers in Calcutta face the prospect of a rise in their electricity bills because of the additional tariff that is likely to be imposed to help power producers to foot the penalty imposed by the Supreme Court order.

Power companies consider the coal cost as a "pass through", which means consumer must pick up the tab.

Source: The Telegraph, Kolkata