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Making Captive Coal Block Allotment Policy Work, Shri R V Shahi, Former Secretary, Ministry of Power

With increasing generation capacity in coal based thermal plants, the demand for coal is increasing. Another reason for this increase is the improvement in availability and generation of the existing capacity, which is reflected by an overall increase in the Plant Load Factor of thermal plants across the country. Simultaneously, the diminishing calorific value of coal also results in additional requirement of coal for the same level of generation. In the recent weeks it has been reported that a number of power plants in the country have stocks of coal which render them in critical and super critical categories, i.e. holding coal stocks of less than seven days and less than three days requirement respectively. While Ministry of Coal has clarified that coal stocks at mines are available and transportation is the reason for criticality of stocks at power plants, the fact is that pressure on coal supply will continue. The situation is likely to accentuate in coming years when the pace of capacity addition increases. The very fact that almost 60,000 MW capacity projects, of which more than 40,000 MW are coal based projects, are at present under construction indicates that in coming two to three years coal requirement growth per year is going to be significantly higher than experienced in the past.

Precisely for these reasons and to boost the power generation capacity in the country, the Energy Coordination Committee chaired by the Prime Minister decided in early 2005 that the process of captive coal block allotment should be streamlined and larger number of coal blocks should be identified for allotment to companies which are setting up power projects. After several rounds of discussions it was finally decided in 2006 that coal blocks with approximately 20 billion tonnes of coal reserves could be identified by the Coal Ministry and these blocks could be allocated to public sector and private sector power companies. Coal Ministry needs to be complimented for the required actions and allocations of coal blocks to a large number of power generating organisations. To start with, central public sector companies like NTPC were allocated these blocks, a number of state generating utilities were also given these blocks and subsequently coal blocks have been given to a large number of private companies as well. It is understood that allocations in respect of almost 18 billion tonnes of coal reserves have been finalised. According to the web-site of the Ministry of Coal, as in May, 2007, altogether 182 coal blocks have been allotted; about 110 cases belong to power companies. In many cases blocks have been allotted to consortium of group of companies as determined by Ministry of Coal, in which case these companies will have to form joint venture for coal mine development.

Based on the experiences of the past, the procedures now require that the developers should commit to a time bound achievement of various milestones. They need to put in place bank guarantees of specified amounts so that they could be encashed in case of failures with reference to commitment for coal production. The revised procedure, therefore, is definitely a marked improvement over the previous system and most likely should result in achievement of the objective and targeted production.

The main features of the revised guideline are given below:

  1. The allocation is made to meet the coal requirement of the permitted end use project. The block may be allotted to an End User Company, JV or a Mining Company which has firm back-to back tie up with specified End User Company (ies). The Mining Company should have a legally binding and enforceable supply contract/ agreement for the life of the mine. The coal produced from the block shall not replace any coal linkage given to the applicant by the Coal India Limited/its subsidiary companies and/or by the Singareni Collieries Company limited, without prior permission of this Ministry.

  2. The block is meant for captive use in their own specified end use projects or that of associates/end use company (ies) in case of a mining company.

  3. In case it is required to beneficiate the inferior grade coal the middling generated shall be used for power generation in their own power plant i.e. the useable middings/rejects generated during beneficiation shall be used captively by the allocattee. The modalities of disposal of surplus coal/ middlings/ rejects if any, would be as per the prevailing policy/ instructions of the Government at the relevant point in time and could also include handing over such surplus coal/ middlings/rejects to the local CIL subsidiary or to any person designated by it at a transfer price to be determined by the Government.

  4. The coal production from the captive blocks shall commence within 36 months (42 months in case the area is in forest land ) of the date of allocation in OC mine and in 48 months(54 months in case the area fall under forest land ) from the date of allocation in UG mine. The end use project schedule and the coal mine development schedule should be modified accordingly and submitted to this Ministry within 3 months from the date of allocation.

  5. The Company shall buy the Geological report (in respect of fully explored blocks) from CMPDIL within six weeks of the date of allocation.

  6. In respect of an unexplored block, the allocattee company shall apply for a prospecting license within three months of the date of issue of allotment. The exploration shall be completed and geological report prepared within two years from the date of issue of prospecting license.

  7. The company shall submit a bank guarantee equal to one year's royalty amount based on mine capacity as assessed by CMPDIL, and the weighted average royalty within 3 months of the date of this letter. Subsequently, upon approval of the mining plan the Bank Guarantee amount will be modified based on the final peak/rated capacities of the mine.

  8. The company shall submit a mining plan for approval by the competent authority under the Central Government within six months (in respect of explored blocks) from the date of this letter.

  9. In respect of an unexplored block, the mining plan shall be submitted for approval by the competent authority within two years and six months from the date of issue of the letter of allocation.

  10. 50% of the bank guarantee shall be linked to the milestones (time schedule) set for development of captive block, and the remaining 50% to the guaranteed production. The bank guarantee shall be liable to the encashed in the following eventuality:

  1. There shall be an annual review of progress achieved by an allocattee company. In the event of lapses, if any, in the achievements vis-a-vis the milestones set for that year, a proportionate amount shall be encashed and deducted from the bank guarantee.

  2. Once production commences, in case of any lag in the production of coal/lignite, a percentage of the bank guarantee amount will be deducted for the year. This percentage will be equal to the percentage of deficit in production for the year with respect to the rated/peak capacity of the mine, e.g., if rated/ peak capacity is 100, production as per the approved mining plan for the relevant year is 50 and actual production is 35, then ( 50-35)/100 x100 =15% will lead to deduction of 15% of the original bank guarantee amount for the year. Upon exhaustion of the bank guarantee amount, the block shall be liable for de-allocation/cancellation of mining lease.

  3. The allocattee shall ensure that the bank guarantee remains valid at all times till the mine reaches its rated capacity or till the bank guarantee is exhausted. Any lapses on this count shall lead to de-allocation/ cancellation of mining lease.

  1. No coal shall be sold, delivered, transferred or disposed of except for the stated captive mining purposes except with the previous approval of the Central Government.

  2. Mining of coal from the allocated captive coal block shall be carried out in accordance with the applicable Statutes/Rules/Orders/Directions governing the mining of coal in the country.

  3. Those of the above conditions relevant at the time of grant of mining lease shall be included as additional conditions in the mining lease in addition to any further conditions imposed by or agreed to by the Central Govt.

  4. The State Government at the time of seeking previous approval for the grant of mining lease shall submit a draft of the mining lease containing the above relevant conditions for vetting by the Central Govt. The final mining lease shall be as vetted/modified by the Central Govt. Any deviation from the vetted/modified draft shall render the mining lease deed ab-initio null and void and without effect.

  5. Allocation / mining lease of the coal block may be cancelled, inter-alia, on the following grounds:

  1. Unsatisfactory progress of implementation of their end use sponge iron plant / power plant.

  2. Unsatisfactory progress in the development of coal mining project.

  3. For breach of any of the conditions of allocation mentioned at (i) to (xi) above.

The De-allocation/cancellation of mining lease shall be without any liability to the Government or its agencies, whatsoever. Any expenses incurred by the allocatee or any right or liability arising on the allocatee out of the measures taken by him shall solely be to his account and in no way be transferred to or borne by the Government or its agencies.

  1. The company may approach CMPDIL for the geological report and contact the State Government authorities concerned for the necessary permissions/clearances etc. for attaining mining rights and related matters. The arrangement of transport of coal will have to be worked out by the company.

  2. In case of coal blocks acquired under the CBA Act, the mineral rights shall be surrendered by the Government Company to the State Government. On payment of necessary compensation/ considerations by the allocatee company to the Government Company, the land shall be transferred to them and the State Government shall grant a mining lease over the area in favour of the allocatee company under the provisions of and as per the procedure prescribed under the MM(D&R) Act and MC Rules. Any delay beyond 2 months by Government Company in transferring the title /possession of land, as the case may be, can be claimed as grace period by the allocatee for the purposes of conditions (iv) &(vii) above.

I recall, that in 2005 we institutionalised a mechanism in the Ministry of Power for periodic review (once in 3 - 4 months) of each and every block allotment to see whether the process is proceeding towards the mile stones with ultimate achievement of targeted production schedule. These reviews threw up a number of initial problems in the process of mine development activities. These related to investigation for finding out, in an authentic manner, the geological reserves, environmental studies, land acquisition etc. One of the initial problems that surfaced was in relation to obtaining the Geological report itself from the Coal Mines Planning and Development Institute (CMPDI), a subsidiary of Coal India Ltd. Two years thereafter, while some of the problems seem to be getting addressed, most others remain where they were.

It needs to be put across straight away that in almost all cases of open cast mining, production of coal itself is not a very lengthy process. If the equipment needed are mobilised, coal production is a matter of six months and that too to a visible level of output. No doubt, in case of underground mining the technology requires a much longer gestation, particularly when the over burden ratio is excessively high. Thus, what has made the coal mining operations a very lengthy activity is really on account of initial planning, investigation, preparation of mining plan, obtaining environmental clearance, land acquisition and securing sanction for coal mining in forest areas etc. The entire process, therefore, leads to a cycle time of four to five years and in a number of cases, even longer. This has been the experience where the coal mine development has been undertaken by the Coal India subsidiaries themselves, when they had the direct advantage of interactions with and guidance of their own sister company viz. CMPDI. In cases of other developers, whether in the public sector or in the private sector - for private sector the problem being even more acute - interactions with CMPDI and therefore all the inputs from them become very difficult to access. Therefore, the very commencement of this process, after the allotment undergoes a rough weather, sometimes creating a frustrating type of atmosphere for the developers who, it needs to be appreciated, are new to this job. The macro level thinking of the government and, therefore, the objective of this whole exercise was that when the country was embarking upon a speedy and massive power capacity addition programme, since Coal India and their subsidiaries on their own might not be able to match the requirements of these expansions, coal mine development through captive routes could play a meaningful supplementary role. To this end, what was required was to go out of way, render all possible assistance, appreciate the difficulties and needs of new organisations totally unaware of the problems of coal industry and provide much needed hand holding so that this process takes off smoothly. Experience of last two years indicates that there is considerable to bring about this type of a developer friendly orientation.

I had the occasion to interact with two important organisations - one in the public sector and another in the private group - to understand the problems of these agencies which are leading to delays in the process of mines development and coal production. At the outset, it needs to be stated that mere allocation of blocks is not enough. It requires a number of inputs which only the government or the Coal India could provide, in absence of which it would not be easy to go ahead and meet the targets. The safeguard of commercial obligations, in the form of bank guarantees to make these coal block allottees, was necessary and it has rightly been done to extract and ensure their committed actions. However, these may prove inadequate unless matched with required inputs from government agencies and government coal companies. What is apprehended is that these coal allottees may fail to deliver on schedule, and yet, may demonstrate conclusively that these failures cannot be attributed to them and they were beyond their control, and that most likely the reasons lied in the laps of government agencies. In any case, these commercial controversies would be settled either way, in favour of or against these agencies or may remain even unsettled. This is inconsequential. What is, however, consequential is the loss that the country will suffer. The government coal companies would have rightly accounted for the specified quantum of coal production and supply from these captive mines, would not have created additionalities and as a result either the commissioned power generation capacities would go without coal leading, in turn, to loss of generation or entire shortfall would be spread over all the plants which eventually means the same thing i.e. the loss of generation. We all know the examples of stranded gas based generation capacities which have been waiting for additional gas production.

In the light of the above, it is extremely important that genuine problems are identified, and an institutionalised mechanism is put in place so that it could periodically capture the areas of concerns, difficulties and could take appropriate remedial measures and monitor the progress over the entire mine development and production cycle. Based on the interactions with both public and private sector agencies, I would like to summarise some of the issues which need immediate attention:

  1. A cursory analysis of the coal blocks which have been allotted indicates that while in some cases the CMPDI had carried out the geological investigations (sufficient to prepare mining plan), in most other cases, detailed geological investigations will be necessary before the mining plans are prepared. A good mining plan is the starting point. Ideally, it would have been desirable that only such blocks are allotted where the geological investigations had been carried out. Since adequate number of such blocks were not available, nothing better could have been done.

  2. Carrying out of geological investigations requires drilling in the coal mines area. Invariably all the coal mines have dense forests. As per the present policy and procedure, even for limited number of drilling, required for geological investigations, it is necessary to secure permissions from the Ministry of Environment and Forest. It takes a lot of time. As these Investigations are not really extraction of mines for coal production, these are limited activities mainly to establish feasibility, type of technology and for preparation of Project Report. While it is appreciated that no mining activities of extraction and production can be permitted without appropriate environment and forest sanctions, can we expect that for initial investigations this process is made simpler and faster? In any case, this should be followed by detailed Environmental Impact Assessment (EIA) study and also collection and compilation of details necessary for forest clearance. The due process should continue. It may be relevant to mention that as per the present procedure, wherever forests are involved, the proposal is considered by the Empowered Committee and each case goes right upto the level of Supreme Court. Three simplifications need to be considered:

  1. The Ministry of Environment and Forest should comprehensively get the entire coal areas of the country mapped and declare "Go" or "No Go" territories for this limited purpose. This would enable Ministry of Coal as well as other concerned agencies not even to initiate any proposal in respect of "No Go" Areas. This will, it may be appreciated, take away lot of infructuous efforts and will channelize the resources of concerned agencies, in a focused way, on coal bearing areas which can be pursued for investigation, extraction etc.

  2. As an immediate measure, a decision could be secured from the Ministry of Environment and Forest, Empowered Group and Hon'ble Supreme Court that elaborate procedure for environment and forest clearance may not be necessary for limited drilling operations needed for geological study. This, of course, could be with the clear stipulation that, the agency concerned could avoid, to the extent possible, cutting of trees for conducting drilling. They could locate from the large area available specific non forest spots for such investigations. This step alone can save six to eight months.

  3. For the final clearance for extraction and production of coal, it needs to be reviewed whether each case should go right upto Supreme Court. When the Empowered Group has been constituted by the Supreme Court and the guidelines have been comprehensively formulated, the Empowered Group and Ministry of Environment should be delegated the authority to accord such sanctions. If this requires a review of earlier orders of the Supreme Court, Ministry of Coal and Ministry of Environment and Forest together may consider to submit an appeal for reconsideration and review of the earlier judgement.

  1. Acquisition of land is another thorny issue. It calls for a simplification. Both the routes - one by government notification and the other through private negotiations - should be permitted. In case of government notification, the present procedure needs to be revisited so as to make the acquisition faster. It is understood that in a large number of cases, substantial proportion of land belongs to the government. Atleast in these cases the procedure could be made even simpler and therefore faster.

  2. We lived, for several years, with the practice of only couple of government companies viz. CMPDI, Mineral Exploration Corporation of India and Singareni Coal Company, having the sole jurisdiction of preparing geological reports. These companies ensured that no other agencies developed so that they could undertake these studies. Very unfortunately for them their own doings have become the reason for them now being in the firing range. The total performance of these companies aggregated together falls far too short of the need of drilling and investigation. How sad it is that when we have created an atmosphere in which a number of agencies are enthused and motivated to respond to and support the government initiatives in these vital energy segments, they are deprived of any authentic information on these coal blocks! As an immediate measure Ministry of Coal could consider accrediting a number of agencies in the country which could be asked to mobilise resources to undertake geological studies on a war footing. This would apply to future allocations of blocks. For blocks already allocated similar dispensation may be allowed to the allottees who could outsource investigation to such agencies and their studies and findings should be recognised.

  3. Mining Plan is an important milestone in the entire process. It appears that each of the Mining Plans needs specific approval of Ministry of Coal, which invariably depends upon the expertise and advice of the CMPDI. In the revised context this policy and approach definitely needs to be revisited. There is a general perception that the decision of the Ministry of Coal to allot a large number of blocks, which Coal India wanted to be kept within their domain, did not go well with the Coal India and CMPDI. There is an apprehension that CMPDI's approach, while examining these Mining Plans, gets influenced by the above background which inevitably delays the process. Two issues arise (i) Should Mining Plan at all need the approval of Ministry of Coal? and (ii) In case, for some valid reasons, this approval is necessary, should the Ministry of Coal depend on CMPDI or on any other expert agency? I think, may not be in the short term, but definitely in next one to two years we should develop such independent expert agencies whose vetting of the Mining Plan should be good enough not requiring any further approval. The scrutiny by a superior professional agency, other than the mine developer, seems necessary so that Mining Plan leads to an optimal extraction and therefore I am not recommending total elimination of this procedure. But, as an immediate measure, Ministry of Coal could consider being advised by an independent Expert Group which could be asked to give its advice in a reasonable time frame.

  4. In case where a block has been allotted to a group of companies, if total amount of Bank Guarantee is not deposited by all the companies, at least those who have done so, could be allowed to go ahead. Grouping is the decision of the Ministry of Coal. If one or two companies in a group of five to six are not serious, entire group may not be denied the opportunity to proceed. This type of possibility needs to be properly addressed.

  5. In many cases allotments have been so done that access and connectivity for initial work as well as later for coal production and transportation may get land locked. When in a large are a number of companies have to be provided blocks, what is required is a MASTER PLAN of that area to accommodate connectivity, coal transportation (rail/road), and other essential infrastructure. This cannot be done by each group. This requires a coordinated planning and action.

  6. Specific needs of those who have to set up coal washeries may require proper consideration. In the interest of environment, washing of coal is important and therefore should be encouraged. A comprehensive policy guideline seems necessary so that this could facilitate the process of setting up coal washeries and also linked power units based on washery rejects.

  7. Identification of non coal bearing corridors to be used for infrastructure facilities and townships including rehabilitation colonies is equally important. The Master Plan should consider these requirements. This again is something which cannot be left to each developer but will need to be coordinated for a group of mines in each area.

  8. A more practical way of getting faster coal production from these captive blocks ( in fact for any block) could be to create two to three phases in each of these blocks. Developer could identify comparatively easier areas within these blocks (keeping in view government/private land, forest/non-forest land etc.) and get the required investigations, mining plan, approach etc. first for the first phase so that production could start early, and simultaneously also repeat the cycle of activities in sequence on second and third phases. This approach will require due consideration and consents by Ministry of Coal as well as Ministry of Environment and Forest.

  9. The matter regarding creating of Forest Banks and a Special Purpose Vehicle (SPV) to be set up jointly by power companies has been under discussion for quite a few years. This was meant to speed up the process of forest clearance by debiting from the Forest Bank the land and money deposits for developing forest, based on advance actions. Government waste land could serve a very useful purpose for this. Ministry of Power, Ministry of Coal and Ministry of Environment and Forest could revive this initiative. I recall, a few years back a good amount of preliminary work was done on this. Now that a number of players are going to be there in coal mine development, all of them could participate in this initiative.

Initiatives of Ministry of Coal, in last two to three years, have been laudable. Captive coal will constitute, in next five to six years, a meaningful proportion and will, to a great extent, relieve the stress caused on public sector coal companies today. It is needless to say that there are immense opportunities for government coal companies to achieve even a more rapid growth than they could secure in the past. Since captive coal initiative needs a few initial inputs and a hand holding approach to get the new procedure on track, a few suggestions made in this paper, based on experience of the concerned agencies, may be given a fair consideration. Coal and Power Industries in India have moved concurrently and their growths are inseparable. Power sector cannot have a sustained momentum unless domestic coal industry propels it. These suggestions may not make all the difference, but they can definitely make some difference.