Denationalize coal. Auction all future coal blocks. Allow all winners to produce associated gas (methane) as well as coal.
These should be the key features of a new coal policy, following the Supreme Court’s striking down of 214 coal block allocations since 1993. Many analysts call this a verdict against corruption. Actually, the court has cancelled the allocations as arbitrary and violative of the coal nationalization law, rejecting as flawed the attempt to create a loophole in 1993 through captive mining.
The judgment exposes the folly of coal nationalization in 1973. This led to a coal shortage, so the government attempted a half-hearted reversal through captive private mining in 1993. The correct solution is denationalization, ending the outrageous monopoly of inefficient, corrupt Coal India Ltd.
In Australia, collieries produce 75 million tones per manshift (of eight hours) in open-cast mines and 40 tonnes per manshift in underground mines. Coal India averages barely 7 tonnes and 0.8 tonnes respectively. Cynics say Coal India deserves a green award for reducing fossil fuel production and carbon emissions!
Coal India’s machines work 15 hours per day, against 22 hours per day in efficient mines. Although India has the third largest reserves of coal in the world, Coal India’s gross underperformance has made India a massive coal importer.
This is the equivalent of Kuwait importing oil. It is a scandal far worse than anything the CAG or courts have exposed. Forty years of Coal India’s monopoly have proved beyond doubt that nationalization has been a disaster. It must end. The Vajpayee government in 2002 introduced legislation in the Rajya Sabha for denationalizing coal. That bill needs to be updated and implemented fast, maybe by an ordinance.
Some aspects of the Supreme Court verdict are worrisome. The allocation of coal blocks was indeed arbitrary, conferring windfalls on beneficiaries. But wasn’t this true of virtually every decision in four decades of the licencepermit raj? In the pre-reform era, industrial licences were very valuable, but were allotted through political discretion, not auctions. Import licences were very valuable, but were allotted, not auctioned. Ditto with foreign exchange, land, water and all manner of minerals. This unquestionably led to arbitrary and corrupt behaviour. But can the solution be to cancel every single executive decision based on political discretion since Independence?
There is a well-known principle in law called grandfathering. This means that when a new policy or verdict changes rules and regulations, this applies only to new proposals, while old ones are allowed to continue on the basis of their original clearances. Any deal proven corrupt should lead to prosecution, but others should be “grandfathered”.
This can be done along with the imposition of a penal tax, if required, to create a level playing field among all players.
Coal mines contain not just coal but huge quantities of methane (natural gas). This is explosive, and was traditionally vented into the air outside. But today it has become a valuable fuel that must be exploited fully.
India has identified 5 trillion cubic metres of gas in coal deposits, and further exploration could raise that figure tenfold. Initial work on exploiting coal-bed methane (CBM) started in 2002, and 33 blocks were awarded for exploration, but enormous delays in government permissions for drilling and pricing have held up production till now. When fully cleared, the CBM production of just five companies can rival the 12 million units per day being produced from Reliance’s KG basin today. There is much heated debate about offshore gas production, but silence on the astounding failure to expedite gas production from coal blocks.
Besides, CBM licensees can extract only gas, not the associated coal, because of Coal India’s legal monopoly.
This is technically ridiculous. In other countries, the same company will first extract all the gas and then extract the coal. This needs to become standard practice in India too.
But that requires denationalization first. Some gas is found in all coal mines, and historically has caused massive fires and explosions, killing many and ruining large deposits. In most mines, gas yields may be too low for stand-alone exploitation. Indeed, some of the 33 CBM licences have been surrendered because of low yield.
However, if every licence covers gas plus coal, it will make sense to first extract the gas and then the coal. We should consider making this mandatory as a safety measure that also conserves energy. If all mines are de-gassed before commercial mining, that will ensure full recovery of valuable gas and also curb fires and explosions. It will also stop leakages into the air of methane, a powerful greenhouse gas. It will mean letting one ministry handle both coal and CBM. That’s the way to go.