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Wednesday, 06 November 2013 00:00
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After CBI FIR, Orissa puts coal blocks on hold

Though the prime minister’s office has come out defending the allocation of part of the Talabira coal block to the AV Birla Group for its R11,000-crore aluminium plant, not surprisingly the Orissa state government has put on hold all the coal mines allocated by it between 1993 and 2012, potentially affecting billions of dollars worth of investment. The state’s argument is a sound one: if central investigative agencies are probing the allocation of the Talabira coal block, the same could happen to other blocks that the state had recommended for allocation as well. And if the CBI is not willing to buy the argument that the Birlas got the block since they were making a large investment, they may not apply this logic to other allocations either. Since the larger point is that, at the time of the allocation, there was no policy of auctions of coal mines, it is imperative that the Central government step in and arrive at a solution to the problem. One such solution, easy in the case of groups like the Birlas, is to look at the investments on the ground of companies that have been allocated coal blocks—this will prove whether the coal blocks have been allocated to actual users or just to fly-by-night operators who would probably just sell off the allotment for a profit.

Another way to address the issue, and this has been done in the case of telecom quite successfully, is to set royalty and cess rates that ensure the government gets part of the upside of the mining activity. In telecom, while the government never charged for spectrum beyond what was promised to firms in their license agreements, a higher annual spectrum usage charge was levied—indeed, the charge rose as the amount of spectrum with firms kept rising, the net result of which has been that in FY13, the government earned R19,440 crore from spectrum revenues. In the oil sector, similarly, while there are revenue shares in the case of blocks that have been auctioned under the New Exploration Licensing Policy, the government is free to hike the royalty and cess in even the older blocks. So while it is true that auctions are the most transparent way of allocation, it would be foolhardy to cancel all allocations made in the past; the better solution, and one that can be defended in a court, would be for the government to recover part of the potential upside through royalties and cesses—an important thing that needs to be kept in mind is that the biggest positive from the economy’s point of view would be that mining will take place. In the long run, were commercial mining to be allowed, chances are many firms who have been allocated blocks would be happy to surrender them since the biggest reason for wanting the blocks was so as to not remain at the mercy of Coal India and its low levels of production.


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