Coal news and updates

Flaw in penalty waiver clause for state power cos?

The Centre's move to spare state-run power utilities the burden of coughing up the coal penalty has put the spotlight back on a little known facet of the Comptroller & Auditor General (CAG) report on coal block allotment that had rocked the country three years back.

The CAG report, which finally led to the cancellation of 214 blocks and paved the way for a transparent auction process, had estimated the loss to the national exchequer at a gargantuan Rs 1,85,891.34 crore by failing to adopt a competitive bidding process for the allotment of coal blocks to private players over a 20-year period since 1993.

The calculation, however, did not take into account the coal extracted by public sector entities that formed joint ventures with private parties on the premise that they retained their status of a public sector even though the majority stake was with the private player.

The second ordinance, which superseded the one promulgated in October, put the burden of paying coal levy of Rs 295 for every tonne of coal lifted between 1993 to 2012 on joint ventures such as Bengal Emta Coal Mines Ltd while sparing state-run West Bengal Power Development Corporation.

"In case of joint ventures of PSUs with private parties, the allottee has been considered as government parties and not included in the calculation of benefit," the CAG said in its report in the section dealing with the performance audit of the coal blocks that were allocated.

The national auditor arrived at an enrichment estimate Rs 295 a tonne by taking into account the difference between the average price of coal from Coal India and the private parties' cost of production. The CAG estimated the difference to be the financial gain made by private parties who received coal mines by the now disbanded screening committee.

However, the Supreme Court in its order dated September 2014 slapped the additional levy of Rs 295 per tonne on all companies, including Bengal Emta, which is operating five mines that were allocated to WBPDCL. Bengal Emta had formed a JV with the state-run utility.

"In addition to the request for deferment of cancellation, we also accept the submission of the learned Attorney-General that the allottees of the coal blocks other than those covered by the judgment and the four coal blocks covered by this order must pay an amount of Rs 295 per metric tonne of coal extracted as an additional levy," the order said.

"This compensatory amount is based on the assessment made by the CAG. It may well be that the cost of extraction of coal from an underground mine has not been taken into consideration by the CAG, but in matters of this nature it is difficult to arrive at any mathematically acceptable figure quantifying the loss sustained," it added.

"The compensatory payment on this basis should be made within a period of three months and in any case on or before 31st December, 2014," the order read.

Taking a cue from this order, the Modi government promulgated an ordinance seeking additional levy and laying down the method for auction and allotment of 214 coal blocks cancelled by the Supreme Court ruling.

The PSUs who formed joint ventures were asked to cough up the penalty as well despite the clear observation by the CAG. Bengal's WBPDCL was staring at a burden of Rs 1,500 crore, which could potentially wreck the budget mathematics of Bengal finance minister Amit Mitra.

A coal industry veteran wondered if the change in second ordinance now captured what was not reflected in the Supreme Court order of September. "It was rather unfair to ask PSUs to pay the penalty even though the CAG had kept them out of consideration while computing the pecuniary gains maid by the coal block allottees," he added.

Cheaper coal

The second ordinance, however, failed to resolve the anomaly completely as the JVs also did not make any financial gain worth noting. For instance, the EMTA joint venture contracted to sell coal from Tara East and West mines in Bengal at a rate that was 19.5 per cent cheaper than the Coal India price for the same grade of coal. For the rest of the three mines, the JV was paying 21 per cent less than the benchmark CIL rate.

Since WBPDCL sourced coal cheaper, consumers in Bengal (outside Calcutta and Howrah) paid less for power as the tariff fixing authority passes on the coal cost to users. This point was highlighted by Punjab power utility, which approached the Supreme Court with a revision petition against the September order.

However, the apex court did not pay heed to it.

State utilities formed JV with private miner like Emta as the former neither had expertise in coal mine nor had the money to finance a mining project. Emta had then come forward with funds to develop the coalmines which included buying expensive equipment and land (surface rights). To protect its financial interests, Emta had asked the state utilities to execute the mining lease with the JV in which it was a majority partner. The state utilities agreed.

Questions are now being raised whether the second ordinance was legally right in considering the JV as the 'prior allottee' on which the burden of paying the penalty would devolve. The argument against this stand is that the JV was neither allotted the coal mine nor did it have an end-use project that would be able to consume the coal extracted. WBPDCL, the state-owned company, owned the project that eventually used the coal - which would make the JV a mere contractor.

Source: The Telegraph, Kolkata