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Devil in Bengal coal bonanza detail

Already struggling, state runs risk of losing industry bait ...

The Bengal government can look forward to raking in the money that the proposed coal auctions will fetch but the process might take away from the state one of the few comparative advantages it can offer industry.

Coal is one of the selling points Bengal has, considering the state is not rich in other natural resources that heavy industries such as steel need.

Under UPA rule, coal blocks were allotted by a screening committee to state-owned companies and others. The state-run firms used to enter into mine development deals (which essentially facilitated mining) with industries that planned to invest in the respective states. The route allowed the state governments to not only allocate the coal blocks to potential investors as an incentive but also set terms on the use of the fuel mined from the state.

Using such powers, the erstwhile Buddhadeb Bhattacharjee government had turned down the request of the Jindals to take coal from mines in Bengal, where they are setting up a steel and power project, to their plants in Karnataka. The Jindals had entered into a mine development deal with the West Bengal Mineral Development and Trading Corporation.

However, the screening committee’s discretionary — and discredited — process has now been struck down by the Supreme Court, and the NDA government has activated an auction system that was endorsed by the UPA towards the end of its tenure.

When the ordinance-driven e-auction process kicks in, companies that win competitive bids will be free to take the coal to any place in the country. This will mean that other than the scope for saving on transport costs, Bengal will not enjoy any other advantage of sitting on sprawling coal reserves.

For instance, the Jindals, whose request to take coal from Bengal to Bellary as an interim arrangement was once turned down, can now do so if they bid for the blocks in the eastern state and win the auction.

The auction-enabling ordinance does mention “the central government may allot a… coal mine to a government company or corporation….”

But sources in Delhi said this provision was meant for power generation firms and the Centre was unlikely to set aside mines for entities such as the West Bengal Mineral Development and Trading Corporation.

The Bengal mineral corporation does have the option of aggressively bidding for local mines and then offering them to potential investors but that will push up the cost of industrialisation.

The coal incentive would not have been such a big factor had Bengal been on a strong wicket on the other features that attract industry. But a perception of a general drift, the inflexible land policy and the meddling of local strongmen in business matters have compelled the state to depend inordinately on coal and its cheap manpower.

According to the Centre’s database, Bengal has 100 coal mines — 14 open-cast mines, 84 underground mines and two mixed mines. As of April this year, the state’s coal reserves stood at 31,318 million tonnes — 10.38 per cent of the national estimates.

Even the cost of ferrying coal to other states need not help Bengal. As most of the coal reserves in Bengal are spread in Birbhum, Bankura, West Midnapore and Purulia, ferrying coal to Jharkhand or Odisha will be economically viable because of the short distances between the mines and the end-use plants.

“Availability of coal from nearby mines had helped industries getting locked in Bengal despite local problems. But now, a company can take coal out of Bengal and feed plants anywhere in India,” said a coal industry veteran who did not wish to be named.

The coal industry veteran went to the extent of saying that “the ordinance may help some of the companies to free themselves from Bengal”.

When the Left was in power, several companies such as the Jindals’ JSW, Bhushan Steel, Kalyani Steel, Vedanta Group and Videocon had proposed steel, power and cement projects in Bengal in the hope of getting coal mine allotments.

An industrialist said: “Corporates will work out the cost benefit of putting up a plant in Bengal vis-a-vis other states. If other states can offer more conducive environment for industry, business will go there.”

An unintended fallout of the new coal policy could be the neutralisation of the advantage the eastern states had hoped to reap after the last century’s freight equalisation policy was abolished.

The freight equalisation policy was adopted by the Centre to facilitate its objective of a balanced growth model all over the country. It meant that a factory could be set up anywhere in India and the transportation of minerals would be subsidised by the central government. The policy was introduced in 1952, and remained in force until 1993.

During that period, the landed price of coal hauled by railway rakes used to be the same for any industry across India, robbing Bengal and many other states of the advantage of having coal mines.

In most cases, industries were set up in coastal areas with the objective of using ports or inland locations to ensure faster and smoother access to the marketplace.

Once the policy was abolished, eastern states like Bengal and Odisha had hoped they would attract investors since building an industry closest to the mine would reduce transportation cost.

The cash-strapped Mamata Banerjee government will be enthused by the prospect of more money in the exchequer as the auction proceeds would go to the respective state governments. But lack of industrial activity will cost the state dear.

“Whenever an industry is set up, a multiplier effect kicks in, resulting in jobs for qualified professionals and growth of the state economy, which in turn results in higher revenues for the state government. One-time payments can never achieve these benefits,” a city-based economist said.

Source: The Telegraph, Kolkata