Coal news and updates

Will states demand mining payments from CIL too?

April 14: The coal-bearing states are expected to earn about Rs 335,000 crore by way of giving rights to mine coal from 67 coal blocks that were auctioned and allotted by the Ministry of Coal in February and March, 2015, Secretary (Coal) Anil Swarup said in Kolkata recently.

“Apart from that there is a tariff benefit. In the reverse auction, the bidder has to pass on this to the consumers and the tariff benefit will be say another Rs 69,000 crore. So, in all, there is value generation of Rs 400,000 crore through auctions and allotment of 67 blocks so far,” Swarup had said.

The question that is doing the rounds is whether the coal-bearing states will now ask even Coal India Ltd (CIL) to pay the same amount to them for providing them the right to mine coal from their states.

When ICMW asked Swarup the same question, he said, “See, I don’t want to visualise these questions upfront.”

“What we see is that a player had nothing but now we have given it something substantial. We keep saying that it is co-operative federalism at its best. So we will continue to discuss with state governments,” Swarup said.

When asked now the states know they can seek payments from CIL as well, Swarup said, “Let’s see.”

However, when the same question was raised before former CIL Chairman P S Bhattacharyya, he said “The question is pertinent and I was also thinking whether such a scenario will evolve.”

“This (recent gains through auction of mines) might lead to an increase in the state governments’ coffers. When the issue of revision in royalty rates come up, the states may also discuss issues like why royalty rates should not go up for CIL as with the private players? Bhattacharyya said.

Another reason why state governments might press for this demand is the advantage that exists with CIL, the former chairman said.

“The advantage with CIL lies in the fact that realisations from private or captive miners may always be doubtful but there will be no uncertainty with regard to realising the excess amount from CIL by increasing the royalty rates for the coal behemoth,” he added.

“So … the states can always try to get something extra from CIL,” feels Bhattacharyya.

Asked if this did happen theoretically, how he visualises the scenario as far as CIL is concerned, Bhattacharyya said, “Right now CIL is at a huge competitive advantage because it has got around 80 billion tons of reserves without paying anything. But how much of that will remain with CIL and how much will be snatched away by state governments by way of higher royalty etc is uncertain.”

Echoing Bhattacharyya, another senior industry observer said, “In any case, state governments had been passing through deficit budgets right from the beginning and will continue to face the same situation in the future as well.”

However, N C Jha, another former CIL chairman, feels otherwise.

He said, “The state governments, perhaps, will not raise this issue because they are getting blocks for commercial mining free of cost, without bidding. If they raise the demand, then people may question why any coal block should be allotted to them through the state dispensation route?”

Jha feels the right to mine coal is mainly for new blocks and it may not be applicable to old blocks that are held by CIL.

“The states’ demand may pertain to mainly the new blocks that may be allotted to Coal India and will not be applicable to existing mines of Coal India,” Jha feels.

“But because coal is under the purview of the central government, even if the state governments demand, it may not agree because it has to meet the demands of the entire nation,” Jha added.

Jha pointed out that the formation of Coal India was through the takeover of private mines and there is a purpose and Act for that.

“Right now efforts are on for de-nationalisation of Coal India, but if that happens and if Coal India pays that amount then it can be argued that enactment for auction of blocks was only for captive use of coal and not commercial mining,” Jha added.

Jha also pointed out that if everything is put to on the block, then they will have a right to sell coal and for that the nationalisation Act has to be amended.

“Right to sell coal is not been given to any private sector company. It will rest only with a central government company. The Supreme Court ruling too very clearly said the state government companies are not central government companies. So allocation of coal blocks to them is illegal. That is why all the blocks allotted to state governments were cancelled,” he said.