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Impracticability of the Policy Notification on Environmental Clearance, Shri R V Shahi, Former Secretary, Ministry of Power

About a month back Ministry of Environment and Forest has issued a Circular regarding Environmental Clearance for such projects, including thermal power projects, for which coal supply linkage is essential. According to the Circular dated 1st November, 2010, "All the proposals relating to thermal power projects, steel, sponge iron and any such other projects, which are largely dependent upon availability of coal as a raw material, shall be considered only after the firm coal linkage is available and the status of environment and forestry clearance of the coal source i.e. coal mine/coal block is known. In case of projects, which are based on imported coal, a copy of the firm MOU signed between the coal supply and the project proponent shall be required".

The Circular has further made it more difficult by including the consideration even at the State Level Environment and Expert Appraisal Committees which have been obligated not to consider such projects. "It has also been decided that all such proposals relating to thermal power...., which are pending in the MOEF or with State level Environment Impact Assessment Authorities or State Expert Appraisal Committees, concerned for consideration of environmental clearance, shall be deferred and delisted till the status of environment and forestry clearance of the coal supply source ..... has been established and furnished".

Why is it that I have mentioned that this circular is impractical? The following facts and issues need to be considered:

  1. Long gestation power projects or steel projects require parallel initiatives on a number of issues. Various inputs are tied up not necessarily in series, or in sequence, that means, one after another, but they require to be moved and progressed concurrently. Even after such an approach in project management is followed, the project cycle is such that these projects have long gestations, varying between three to five years. If various inputs and activities are planned and tied up one after another, the period of completion will obviously get elongated to a much longer durations.

  2. If coal linkage has to be tied up with the Coal India subsidiaries, or a captive coal block development process has to be started first, or even if an MOU for imported coal has to be firmed up, all these require commercial arrangements involving financial implications. No project developer nor his lender could afford to enter into such arrangements under the uncertainty about the environmental clearance. Even coal supplier may refuse to enter into any arrangement. Any normal approach would require that one needs to be sure first about the environmental clearance before entering into any long term commercial arrangement. For the Environment regulator to think that Coal India will commit coal linkage, and also incur expenditure on coal development, without ascertaining the status of environmental clearance is a more unreasonable expectation than the expectation on environmental clearance, on the part of the coal supplier, from the authorities in the environment Ministry. I recall a discussion in this regard during 2005 when it was fully appreciated by the Ministry of Environment that these exercises should be allowed to move concurrently. It was clearly understood and stated that any environmental clearance shall be subject to the fuel linkage. In any case, environmental clearance of any project is predicated on a number of conditionalities. Fuel linkage used to be one of such conditionalities. It never happened that the process was stopped as has been stipulated in the latest Circular dated November 1, 2010.

  3. The condition that consideration of environmental clearance, in fact, even consideration at other earlier stages of this process, has been predicated and has been advised to be deferred and delisted till the status of environment and forestry clearance of coal supply source has been established. This requirement is even more impractical inasmuchas it does not recognize the process of coal mines development as distinct from the process of power and steel project development. While a typical thermal power project, even after environmental and forestry clearance, would take more than three to four years, in the case of coal mines it is these clearances which take long time, but after such clearances the production could start in a matter of eight to twelve months. Therefore, any attempt to align clearances for power project and coal project inevitably would mean a serious mismatch between the readiness of these projects. We need to analyse several power projects which have been done in the past and also the coal projects from where power plants have received coal supplies. No doubt, there have been examples of mismatches between the readiness of the coal projects and commissioning of power projects. But, the apprehensions, expressed in the Circular of the MOEF, which perhaps have led to the formulation of new conditionalities, are over exaggerated. Obviously, Policies and Guidelines have to be based not on extreme situations of aberrations, but should recognize and capture normal happenings. Couple of examples of different types should not guide us to prescribe highly restrictive policies which would have the inevitable adverse impact on all the remaining activities, which are of normal nature.

In this context, it is relevant to mention about the Policy of the Ministry of Power, which guides the recommendations for coal linkages for thermal power projects. The Policy dated 21st October, 2009 is comprehensive and follows a Point Weightage System for providing coal linkage. Maximum amount of Weightage has been provided for such projects where land has been fully acquired. In case, the developer has been unable to acquire land, it would be unlikely that the case is recommended for providing coal linkage by the Coal Ministry. The Policy of the Power Ministry requires, as pre-qualification of projects for coal linkage, a number of conditions to be met. These are :

  1. Water allocation should be available to meet the full requirement.

  2. The project should have clearly identified the location and the area required.

  3. Report of the State Government about availability of land for the project should be produced alongwith the document of initiation of land procurement process.

  4. The developer of the project should furnish Report of the Expert Appraisal Committee of MOEF alongwith TOR.

  5. The developer should be meeting the pre-qualification requirement in terms of financial status as per Case-1 Bidding document.

The Policy further stipulates that the projects under consideration would be accorded Weightages for various factors in order to establish priorities for allocation of coal linkages. These parameters include - (a) Whether the project would have Sub Critical or Super Critical Technology, (b) It is a Pit Head project or is away from coal mines, (c) Whether it is using sea water or fresh water for cooling, and (d) Status of acquisition of land. Based on these parameters the point rating would establish the relative priority of the project.

Let us analyse the requirement of the Policy of the Ministry of Power for coal linkage in conjunction with the latest Circular of the Ministry of Environment and Forest and try to see whether both could be worked. Would it be prudent financially for any developer to acquire land (land acquisition has not only become highly costly, but also very challenging), if the developer is uncertain about the decision of the Ministry of Environment and Forest? What will he do with the land and how will he justify his expenditure if the project finally is not done because MOEF did not permit. In any case, if the land is not there, coal linkage will not be provided; and if coal linkage is not there the processes involved in the environmental clearance are stopped by MOEF. And, for coal linkage, one of the requirements of Power Ministry is that Report of the Expert Appraisal Committee alongwith TOR should be available. MOEF has stipulated that without coal linkage, proposal itself will not be considered. How to reconcile these conflicting conditionalities? Where does the balance of convenience lie? Environmental Clearance to come first or land acquisition, coal linkage etc. to precede the environmental clearance?

Ministry of Environment and Forest seems to be re-writing new policies and rules, discarding well tested procedures thereby causing such outcomes as can only lead to avoidable delays. Results of all these are going to be highly costly and the consequence will be known only after a few years.

It does not need to be emphasized that in the power sector, the actions which are taken now lead to delivery of results four to five years hence, and, accordingly consequences of inactions also surface after a similar duration. So far, during the Eleventh Five Year Plan about 30,000 MW have been commissioned. All these were started during the Tenth Plan. Remaining over 30,000 MW are expected to be commissioned during the remaining period of the Eleventh Plan till March, 2012. Again, most of these projects were started in the Tenth Plan and some of them in the first year of the Eleventh Plan. Implication of the Policy change by the Ministry of Environment would be very costly, because if new projects are not started now or get delayed considerably, the capacity additions four to five years down the line would be adversely affected.

What needs to be done? It is necessary that Ministry of Power takes up this specific issue with the Ministry of Environment and Forest to re-visit the Policy change and restore the earlier practice. Also, Ministry of Power itself may re-visit its Policy of 21st October, 2009 relating to coal linkage and re-visit some of the restrictive Clauses, so that the initial project development activities do not get hampered. After a lot of efforts, the sector has been able to enthuse the private sector. Therefore, facilitative approach needs to continue, so that the confidence and enthusiasm of project developers and financiers remain intact.