Cancelling mines a big setback to the idea of India as a safe investment area—an RoFR is damage control
No one doubts that, as in the case of the 2G telecom licences in 2008, the process of allocating coal mines has been flawed, even corrupt for several decades with undeserving companies—as in telecom—managing to get the licences for the sole purposes of flipping them over for a profit. The question, however, was how these were to be dealt with. And that is why, after pronouncing illegal all coal block allocations since 1993, the Supreme Court chose not to simultaneously cancel these—that was, in fact, what was done in 2012 when the Supreme Court cancelled 122 2G licenses issued by A Raja. Yet, after hearing the arguments for and against cancelling 46 mine allocations against which various firms had started projects for power generation or steel production, the Supreme Court has gone ahead and cancelled all but four of them. While cancelling the licences is undoubtedly a big blow for probity, and offers the government a great chance to put in place a clean and transparent process for allocating natural resources, there is a parallel question of investor rights and what happens to them. In the case of telecom, second-level investors like Etisalat and Telenor believed the licences issued by the government of India were kosher, and the banks were within their rights to lend on the basis of these licences. In the case of coal mines, similarly, how were companies producing electricity or steel/aluminium—the Aditya Birla Group is a good name to mention here as few doubt its credentials—to get coal if it was not through the process the Supreme Court later described as illegal? There can be little doubt that, if past projects can be opened up as easily as they are now—the CBI has begun investigation into a hotel privatisation deal done more than a decade ago through a competitive bid—this is going to be a big setback to India’s reputation as a safe place for investors.
In such a situation, if the Supreme Court is satisfied with levying a penalty of R295 per tonne of coal mined in the past six years—that works out to around R6,000 crore for all firms and around R1,000 crore apiece for JSPL and Jindal Power—what’s not clear is why this regularisation charge was not levied for all 46 mines, and these retained with the companies. Given the large difference in costs of captive and other coal, it is not even clear whether the projects based on these mines are even viable anymore. Captive coal, according to a report by Kotak Institutional Equities, costs around R600-800 per tonne in comparison with Coal India’s e-auction price of R2,200 per tonne and imported coal’s R3,500 per tonne once you take into account the different calorific values of the coal. It is not clear if the various counsels arguing the case, including the Attorney General, failed to make this point or whether the Supreme Court chose to ignore this in the larger interests of probity.
All of this, of course, is spilt milk, and what is important is how the government chooses to move ahead. There is the obvious financial costs of giving up mines that are huge, so it is possible some of those who have had their allotments challenged will take recourse to legal action, though it is not clear how successful this will be considering such challenge didn’t add to much in the 2G case. Even if you assume firms are willing to live with the loss of mines, what they really need is access to coal. Which is why it is critical the mines that account for around a tenth of the country’s production not be given back to Coal India with its dismal production track record—the firms are to be allowed to continue mining for the next 6 months—but be auctioned at the earliest. In an ideal situation, the mines should be opened up to commercial miners who have far better productivity than even the captive producers, though allowing commercial mining is anathema to most BJP leaders today—it is a different matter that the BJP allowed this for petroleum when Atal Bihari Vajpayee was prime minister and the results have been spectacular; which is also why, even today, the Rajya Sabha has a Bill introduced by Ravi Shankar Prasad from that period, to open up the sector to commercial mining. Whether or not the government goes in for commercial mining, the only fair thing to do—considering it was the government that allotted the mines in the first place—is to ensure all bona fide firms are given a right of first refusal in the auction. That is the only way to salvage the damage caused by the en masse cancellations.