SC needs to be careful in cancelling ‘illegal’ mines.
Given the complete lack of transparency in how coal mines were allocated, and not just to the private sector—often mines were allotted to state PSUs which, in turn, signed JVs with private firms—by a series of screening committees, it is not surprising the Supreme Court (SC) said all allocations since 1993 were illegal. In many cases, even firms recommended by the state government and the central power ministry were not given coal allocations, such was the discretionary power of the committees. Indeed, of the 216 blocks allocated since 1993, around 80 had been previously de-allocated by the government itself for non-performance or ineligibility—the move, of course, picked up after the CAG report on allocation of blocks between 2004 and 2009 said the government had lost R1.82 lakh crore due to faulty allocations. To that extent, SC terming these blocks—with about 50 billion tonnes of potential reserves—illegal will help clean up the system as the blocks can now be re-allocated through a more transparent mechanism, probably auctions.
That said, it is important to keep in mind the context of the allocation and the illegality. While SC is right in pointing out the lack of transparency, if various governments of the day chose this method, how was industry to get mines except through this process? It was no use the Aditya Birla Group—in the news today for the CBI planning to drop charges against it—saying it wanted to get mines through transparent auctions if, as the CAG report on Coalgate showed, even the then prime minister Manmohan Singh was not able to get the government to agree to auctions. It is ironic, that while SC should say all mines allocated since 1993 were illegal, CBI should be dropping its case against Birla—more on this in the following edit.
While the SC’s ruling seems to be along the lines of the 2G one where allotments through an equally opaque process were declared illegal, the SC has done well not to simultaneously cancel the allotments. These are to be decided next week, after a separate round of hearings. This is important since, going by industry estimates, around R1 lakh crore of investments are riding on these coal mines. Were these mines to be summarily cancelled, this could completely derail scores of projects as well as cause irreparable damage to the balance sheets of banks. What process the SC declares for cancelling licenses will be as important as the one it prescribes for re-allocation of mines. Presumably, the money invested by those with captive mines will be an important factor; the question, however, is whether these companies will simply get to keep their mines or whether they will have to match the offers others make—a right of first refusal, basically. Equally, since SC has declared auctions are not necessarily the best policy, it will be interesting to see what policy it recommends or what policy the government comes up with for future allocations. It would, of course, be best if the government, at some point, amended the coal mining legislation to allow commercial miners, including from overseas, to come in since their efficiency levels are known to be dramatically higher than either Coal India or the captive miners.