No. 69, June 2017
No. 69 (June 2017)
Coal Is King
by Yogi Aggarwal (yogi.aggarwal[at]gmail.com)
[The following is an extract from a forthcoming book by the author on the plunder of the ‘commons’ in India]
Two major events took place in India’s coal sector in the last few months.
First, on the night of December 30, 18 coal miners were killed after the mine collapse at Eastern Coalfields Ltd’s Lal Matia coal mine in Jharkhand. This pushed mining fatalities to over 100 in 2016, of which 65 deaths occurred during just the first six months of this year, for which data is available.
The Ministry of Mines has termed the Lal Matia accident an “unprecedented” event. “Prima facie, it is observed that the incidence is unprecedented, since an area of 300 m length by 110 m wide solid floor of the Over Burden dump area has slid down by about 35 m involving around 9.5 million cubic metres of earth material. This could be due to failure of the bench edge along the hidden fault line/slip,” the ministry said in a statement.
In fact, the disaster at Lal Matia was a result of two factors: one, increased pressure to ramp up output to meet ambitious targets; and a policy of outsourcing to private contractors, a form of semi-privatisation of coal operations. Lal Matia supplies almost half the annual production of Eastern Coalfields Ltd (ECL). ECL awarded a contract in 2015 to a private contractor, Mahalakshmi Infrastructure Pvt Ltd, to handle an overburden of 20 million cubic metres. Repeated complaints by social workers In the first nine months of the previous year, production at Lal Matia grew at the rate of 9.5 per cent. In the course of 2016, several complaints were made to the ECL management regarding the danger of the overburden, but these were ignored, leading to the calamity of December 30.1 One of the reasons why private coal mines were nationalised in 1973 was precisely their poor safety record and the abysmal condition of the workers. The second development was the announcement by the coal ministry on February 2, 2017, that, after 44 years, coal mining was to be opened up to the private sector for commercial mining, i.e., without any specified end use, and for sale in the open market. In 2015 itself, the Government had amended the minerals and mining law to allow commercial coal mining by private entities. Now, four blocks will be identified for auction to private firms for commercial mining, among a total of 25 to be auctioned. It is speculated that among the firms which may be interested are Adani, Reliance ADAG, Jindal and GMR, as well as global majors.2
This background of private entry and deteriorating worker safety makes the following article on the coal sector in India all the more relevant.
The Government will not deal with the natural resources that belong to the country as if they belong to a few individuals who can fritter them away at their sweet will.”-- Supreme Court in its September 2014 judgement on coal block allocation
“Coal is king and paramount Lord of industry” is an old saying in the industrial world. Industrial greatness has been built up on coal by many countries. In India, coal is the most important indigenous energy resource and remains the dominant fuel for power generation and many industrial applications,” observed the Supreme Court in its August 2014 judgment on coal block allocation. Like every other mineral ore, it is supposedly owned by the Indian people, mediated by the government.
And, like every other resource, control or permission over who is allowed to mine it gives the ruling regime an immense ability to dispense patronage. This power is used to subvert the ultimate public ownership of coal or any other mineral resource and divert it into the pockets of the already rich and powerful. It is a heady nexus.
Natural resources belong to the country
It noted further, “Production of coal from captive mining was not encouraging. Out of 86 such coal blocks which were to produce 73 million tonnes of coal during 2010-11, only 28 blocks which included 15 blocks allocated to private sector, could start production by 31 March 2011and produce only 34.64 million tonnes of coal during 2010-11.” Clearly, not only were national resources given for free to corporate interests, but the national economy was further hit by them not being able to deliver the production they had promised.
It should be noted that the Supreme Court considered all mines given after 1993 while earlier in 2012 the Comptroller and Auditor General (CAG) had only considered the 57 mines allotted by the government and not all the 214 mines cancelled by the Supreme Court. For these 57 mines the presumed ‘windfall’ gains to those allotted the mines was estimated by it to be Rs186,000 crore. And moreover, the 142 coal blocks allocated since July 2004 to various state governments and private parties “lacked transparency and objectivity.” A part of this gain could have accrued to the national exchequer by having competitive bidding.
Following the Court’s ruling the new Narendra Modi led NDA government began a process of auction of the coal blocks. In the first two phases 33 mines were auctioned off for a potential Rs2 lakh crore (or Rs 2 trillion) to be recovered over 30 years during which the coal bearing states would get a potential revenue of around Rs 6,300 crore a year when the mines are fully functional. Besides this the government claimed that consumers will get the benefit of lower electricity rates from power companies to the tune of around Rs 90,000 crore over the 30 year period of the lease, though this is far from clear as much will depend on the power rates. When all the mines are auctioned the gains to the states will be several time higher and could even approach the Rs10.7 lakh crore for 142 blocks the CAG had mentioned in its draft report.
When the former comptroller and auditor general Vinod Rai, who was at the centre of the storm raised by the CAG’s revelations of malfeasance and corruption, retired in 2013, he finally opened up on what had happened behind the scenes. In his combative book, Not Just an Accountant, he recounts how the process of allotment by a screening committee came into being, the hurdles he had to face while examining coal allocations and why he came to the conclusions he did.
Significantly, most of the mines given to the private sector were open cast mines. An open cast coal mine is an excavation of monstrous proportions. It can be an enormous pit more than a mile wide and over 500 ft. deep and cover several hundred acres. Huge excavators remove the coal from the exposed side of the deep coal seams that lie below the land’s surface while big dumper trucks, each with a capacity of over 50 tons, transport it to the nearest coal dump. At night, as a mist descends to the depths of the pit, the intense activity in the blighted landscape seems as it might be on another, rougher planet.
Such open cast coal mines account for over 90 per cent of coal production in the country’s coal belt stretching over most of eastern India, compared to a worldwide average of 40 per cent, and only 10 per cent in China. While the cost of removing the coal from these huge pits is only around one-fourth that from the more traditional underground mines, their environmental devastation is much heavier. In most cases the huge pits as well as the nearby hills formed by dumping the excavated rocks and the mud from the pits, are left as they are after the coal seam has been removed. They are trenchant reminders of a development process gone wrong.
It would seem rational that once the coal has been extracted, the huge pits would be refilled with the rubble removed from them, but because it would nearly double the cost of removing the coal this is seldom done. Coal India, the largest coal mining company in the world, does this at best partially. The mines operated by private owners do not bother at all. The result is “Surface mining of coal completely eliminates existing vegetation, destroys the genetic soil profile, displaces or destroys wildlife and habitat, degrades air quality, alters current land uses, and to some extent permanently changes the general topography of the area mined,” resulting in a scarred, blighted landscape.
During a week-long trip to the coal mining areas near Nagpur and Chandrapur in eastern Maharashtra early in 2014 to better understand the business, it was difficult to comprehend why government could have given 218 mines for free to companies without any attempt of an auction. Either the benefit of lower prices for power, steel and cement could have been passed on to the consumer or the government could have made up part of loss by auctioning the coal blocks.
The first revelations of the scandal involving the virtual gifting of vast coal reserves to private and state government owned corporations were made in the report of the Comptroller and Auditor General (CAG) in its Performance Audit on the Allocation of Coal Blocks in 2012. It noted that because of the substantial difference in the price coal was supplied by Coal India and the coal produced through captive mining, there was a “windfall gain” to the private coal block sector allottees to the tune of Rs 186,000 crore. CAG restricted its finding to the period after 2004, a time of UPA government. A substantial part of this could have accrued to the public exchequer if there had been competitive bidding for the blocks given away for free to either steel or power plants or to companies that sell the coal on commercial terms.
It was not just that the government was losing revenue, the Indian people were not deriving any benefit by a corresponding reduction in the price of power or steel or cement. The uproar that erupted in parliament and the media was more responsible for bringing the UPA government down than the 2G spectrum scandal or the other issues of corruption that were exposed by a vigilant CAG. This is because of the story surrounding coal, and its theft, is part of the daily experience of a large number of the Indian people.
New low of governance
It was only in September 2014 when the Supreme Court in its order stated that “the Government will not deal with the natural resources that belong to the country as if they belong to a few individuals who can fritter them away at their sweet will…” that it, and the corporate barons it represents relented. The Court was clear. Of the 212 coal blocks that were to be returned by the companies that had benefited from getting them free, only 40 had begun producing coal while another 36 were on their way to doing so. Thus even after getting a bounty that led to a gain of Rs186,000 crore to various companies at the cost of the Indian people, the companies had not invested sufficiently in them to make them operational.
These coal blocks would be taken over by Coal India so that there is no loss in production and until they were either auctioned off or taken over by Coal India. The Court accepted an estimated loss of Rs. 295/- per ton of coal (suggested by the CAG) already extracted to the nation and ruled that this compensatory payment on this basis should be made within a period of three months. Besides this, this levy would also apply to coal extracted till March 2015.
The corporate giants fought back with characteristic guile. Their lawyers argued that huge investments up to about Rs. 2.87 lakh crore have been made in 157 coal blocks as on December, 2012; investments in end-use plants have been made to the extent of about Rs. 4 lakh crore; and loans to the extent of about Rs. 2.5 lakh crore given by banks and financial institutions would become non-performing assets. Such huge sums can only be verified or denied by an independent auditor like the CAG and after having made the claims the corporate giants should be willing to submit themselves to the audit.
The companies who have made these claims have not offered to have their allegations vetted by a reliable auditor. This has to be seen in the context of the Supreme Court observing that the allotment of coal blocks was a “Violation of the principle of Trusteeship of natural resources by gifting away precious resources as largesse,” and the “Allotment [is] tainted with mala fides and corruption and made in favour of ineligible companies tainted with mala fides and corruption.” The Court stuck to the figure arrived at by CAG and did not judge or evaluate the figures submitted by the eminent lawyers representing their corporate clients. These lawyers maintained that if the government withdraws the free bonanza of Rs1.86 lakh crore to the investors in coal blocks, the country will make a further loss of the sums mentioned because they had invested in the coal mines or downstream activities like power plants, steel factories and the like.
Further the reporters contend that the figure of Rs 2,77,292 crore for end use projects (like power plants, steel mills and cement factories) “might be a hoax”. They report that coal ministry records show that the amounts shown for several projects were not only for the projects for which the companies got the coal blocks “but cumulative investments made by them in larger projects, at times over decades.”
The report adds, “Jaiprakash Associates' cement plant, which was allotted the Mandla North bock, additionally has a fuel supply agreement with South Eastern Coalfields Limited (SECL) for 1.03 mtpa. Similarly, Godavari Power and Ispat Ltd, which got the Nakia I-II blocks, also has an agreement with CIL for 0.35 mtpa coal supply from SECL. KSK Mahandi Power Ltd, which was allotted Morga II and Gare II from the state dispensation route, also has a 7.49-mtpa agreement with SECL for two units.”
All the Court has asked for is that until the coal blocks are auctioned, the allotees pay Rs 295 for every ton of coal mined. This is generally around one-fourth of the price at which it is sold by Coal India and would have to spread out over 630 million tons for the before the loss of Rs 1.86 lakh crore to the state exchequer is redeemed. That would take the companies several years at full production and more at lower levels before they would pay back to the government what they had gained by getting the coal blocks for free.
The beginnings of privatisation
Nationalisation of the mines led to the introduction of better technologies, higher wages for the labour, a vast reduction in corruption and thievery, and a sharp increase in coal production from 79 million tons in 1973 to 450 million tons now. Workers at Western Coalfields (a subsidiary of Coal India) now get an average salary of Rs 40,000 a month, all of them own at least a motorcycle and a few even own cars, they live in pucca houses and are not to be trifled with. In contrast workers at a nearby private colliery near Chandrapur were paid a maximum of Rs15,000 a month and had to put in a 12 hour day.
At a meeting with trade union leaders at an opencast mine near Ballarpur in Chandrapur district, they contended that what was behind the coal scandal was the policy to privatise the coal sector and this was just the thin edge of the wedge. The coal blocks given out to private corporate interests were the best of the unmined sites of Coal India, and by privatising them (either for free as has been done or by auction as proposed) the future expansion plans of Coal India were being put at risk and its growth stunted. Production of coal in the last five years had not grown as much as the building of power generating capacity in the country, but this was planned by allowing for the greater import of coal. Later in the union office at the headquarters of Western Coalfields in Nagpur the union repeated the same refrain.
This is the main reason why the unions were against the ordinance passed by the Narendra Modi regime that would bring back the private sector into coal mining. The ordinance (passed as a bill in March 2015) recommended by the cabinet in October 2014, less than a month after the Supreme Court order to de-allocate 212 coal blocks, not only allowed e-auction of coal blocks for captive use by private companies and by state and central PSUs but more critically had a provision that would allow future commercial uses of the mines. This would pave the way for giant Indian corporations and foreign mining giants to enter the space.
Private sector ‘efficiency’, or brutal exploitation?
Taking up the union case, All India Trade Union Congress (AITUC) general secretary Gurudas Dasgupta said the government decision on coal blocks “is a backdoor entry for taking over the entire coal sector by the private corporates”. He added, “coal is a vital national resource and allowing it to be handed over to private corporates would lead to serious industrial disturbances”, and “national interest will be jeopardised and CIL will be weakened”. This view was echoed across the board, and many unions threatened a nationwide strike. They felt that the ordinance was an attempt to reverse the Coal Nationalisation Act. Their opposition may also be based on a commitment to protect hard won union struggles that pushed up worker wages in Coal India far above what the private mines were paying. Any privatisation of the public sector giant would only lead to reduced earnings for those employed there.
There were even voices within the Bharatiya Janata Party (BJP). Four-time BJP MP from Chandrapur, Hansraj Ahir, whistle-blower for the coal block allocation scam, said the Supreme Court’s order to cancel 214 coal block allocations has vindicated his stand that these were illegal and done in an arbitrary manner. Ahir told reporters, that state-run Coal India and other undertakings were deliberately left to decay with a sole objective to help private players. “I am of the firm view that the government should provide necessary assistance to Coal India so that the central undertaking will be in a position to step up production considering rise in demand for coal due to increase in the generation capacity.''
They were not the only ones against the ordinance. Environment activists planned a nation-wide protest against the ordinance. They felt that while formulating the coal ordinance the government failed to keep the Supreme Court’s strictures in mind. They further contended that the whole process of coal allocation under the ordinance had been centralised without any room for consultation with the states or elected representatives. Another queer aspect of the ordinance is that it would involve paying for the land on which the coal blocks are located, running into several thousands of acres, to be taken over from those who have been de-allocated coal blocks on the orders of the Supreme Court. In other words, after being given valuable ore-bearing land for free by the government, the former allottees of such land will be paid for it when it is auctioned to another industrialist.
To get a better idea of what is involved, a bit of background on the capacity, use, need and import of coal is necessary. Surging demand owing to a vast expansion in power generating capacity, coupled with relatively slow growth in domestic coal production, have led to dramatic increase in coal imports by a country that has traditionally been self-sufficient in coal. Coal based power capacity went up from 76 gigawatts (GW or 76,000 MW) to 130 GW in five years to 2013, a growth of 71 per cent. During the same period, coal used for the power sector, went up from 423 million tons per annum (MTPA) to 508 MTPA, an increase of 20 per cent. As a result, imports ofcoal by the power sector have surged by about 510 per cent between 2007-08 and 2012-13 from 10.2 MT to 62.5 MT.
A March 2014 study, “The largess that wasn’t: The story of coal shortages in India” by the Prayas Energy Group, a Pune based non-profit think tank has a sharp view of the matter. Analysing the reasons for the coal shortage it maintains, “All indications clearly showed that imports would be required to meet the … commitments. However, the Government did not take any policy measures to address this eventuality. Other stakeholders, particularly power plant developers and their financiers ignored the very realistic possibility of coal imports and based their business plans on abundant availability of domestic coal, which was never promised. Thus, it could be said that they contributed to the coal shortage unlike the popular perception that they are victims of it.”
Coal India can hardly be blamed. It had made commitments to power plants of specific amounts –it kept these commitments of 65 per cent of the total requirement of new plants and 90 per cent of old plants. But the power plants were not importing the coal to make the shortage because imported coal is more expensive than local coal and fuel costs make up a large part of power generation costs. They were hoping to pressurise Coal India to ensure that their fuel requirements were met through cheaper local coal rather than through coal imports. The coal ministry under Piyush Goyal also asked CIL to minimise e-auctions, which prevented the company from getting the best price for the coal.
The analysis goes on: “CIL could not possibly supply domestic coal in the quantities expected and consumers were unwilling to take imported coal at higher cost.” Further on it reveals, “According to the Ministry of Coal (MoC), there are pending linkage applications from the power sector for about 600 GW of capacity (requiring about 2,700 million tons of coal per year). This is about five times India’s current installed coal based power capacity and significantly more than the projected requirement of coal-based capacity even in 2031-32 under any supply scenario.” Such a high requirement opens up a Pandora’s box of questions about how this is to be done, the temptation for corrupt practices and a scandal more widespread than the ‘coalgate’ which brought down the previous government.
At the heart of the argument by corporates to corner all coal mines not yet being run by Coal India or the other public sector coal companies is to declare that Coal India cannot meet the coal needs of the country and private sector is necessary to fill this gap. The virtual monopoly of the coal business held by CIL they say makes it inefficient and tapping the entrepreneurial spirit is best way to fill this gap.
Squeezing the public sector through high dividends
Instead of relying on a very high dividend to help curb its budget deficit, most of the company’s substantial profit should go into investment in developing new mines. The available resources would make the dilution of government equity unnecessary. The Modi regime should instead use the proceeds of the auction of coal blocks to partly curb the budget deficit and partly to augment Coal India’s investment needs.
Abysmally low R & D
This is confirmed by an union office bearer of Western Coalfields in Nagpur. Whereas over half of the 437 coalfields belonging to Coal India are underground mines they account for less than a tenth of the coal production. One reason is that CIL is only able to extract only around 30 to 35 per cent of the coal in the underground mines. With advanced technology this could go up to 70 per cent. The company is seeking international co-operation in proven technology from US and European companies to increase output from these mines by using the latest equipment like universal boring machines as well as exploration of methane from coal bed, abandoned mines, gasification etc but it hasn’t made much headway so far. Such new technology (already in use in much of the world) would not only make the mines safer, but would also increase production at lower costs.
Other factors are easier to solve and it is inexplicable why they haven’t been tackled so far. For instance at the superintendent’s office at an underground mine near Ballarpur, I was shown a map that indicated that the face being mined was five kilometres from the bottom of the shaft. The miners made the long trek to and from the mine face wasting much time and energy and facing an additional risk. Underground mechanised transport could easily increase productivity but such a simple a solution was not implemented. Underground mines could yield more at lower cost if the effort was made.
The way forward is to debug and modernise the functioning of the traditional underground mines. Coal India has the resources and should have developed the technology by now to do this or can purchase the technology from partners abroad, without privatising the mines. Apart from increasing production, the rape of the environment by the open cast mines would be greatly reduced. Equally important is the need to fill up the open cast mines with the vast amounts of rubble and mud removed so that the land can be restored to agriculture and pasture. While it would increase the cost of coal, the damage to the environment would be minimized.
There is no reason to think that private companies would be any better. They have neither the experience of the government company in running the coal mines and neither have they shown the inclination to run the mines profitably if they were not given for free. In fact in all probability they would try all possible ways to cut costs, and this would involve paying mine workers less than they get at present from CIL and its subsidiaries, and leaving the environment in a vastly more damaged state than it is at present. As the Supreme Court observed pertinently in its ruling, “That the CIL is inefficient and incapable of accepting the challenge is not an issue at all. The central government is confident, as submitted by the attorney-general, that the CIL can fill the void and take things forward.” Despite the attorney general’s submission, the present and the past governments at the Centre are or were making all attempts to ensure that these rich coalfields should be given to the private sector companies rather than let CIL run them.
1. T.K. Rajalakshmi, “Death in a mine”, Frontline, 17/2/2017; Subhomoy Bhattacharjee, “Lalmatia: A tale of sudden success and tragedy”, Business Standard, 5/1/17. (back)
2. Sanjay Dutta, “Coal mining opened up after 44 years”, Times of India, 3/2/2017. (back)
All material © copyright 2017 by Research Unit for Political Economy