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GoI has failed in its duties towards coal provisions: PCPSPS

People’s commission has called for centralised coal procurements

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Noting the mismanagement of Coal India Ltd by the Government of India, a coalition of jurists, administrators and others, have now demanded centralised procurement of imported coal in their first interim report on June 2, 2022.

Comprising academics, jurists, former administrators, trade unionists and social activists the Peoples’ Commission on Public Sector and Services (PCPSPS) has consulted all stakeholders and people concerned with the process of policy-making. It has also spoken to the people opposing the move to monetise, disinvest and privatise public enterprises. Its first interim report titled ‘Privatisation: An Affront to the Indian Constitution’ looks at the coal crisis in a detailed manner.

Mismanagement of Coal India Ltd

In its report, the PCPSPS highlights how the GoI withdrew Coal India Ltd (CIL) reserves of ₹ 35,000 cr. These reserves were accumulated to develop new coal mines and augment existing mines. However, after the withdrawal, the development programme had to be abandoned.

The government also directed the CIL to invest in the fertilizer industry. The report said by doing so it neglected the primary function of meeting coal demand. CIL’s primary role is to act as the premier explorer and developer of new coal inventories. By indiscriminately auctioning CIL’s coal blocks to less competent private promoters, the Centre curtails this role, said the report.

Further, the government either delayed or failed to appoint key executives such as CMD CIL for several years. Meanwhile, it deputed coal mines managers and executives to the ‘Swatchh Bharat’ assignment, again slowing down the development of coal mines.

“The Centre is expected to anticipate electricity/ coal demand, plan for it, arrange the logistics and ensure that the country is self-reliant in coal supplies. The concerned institutions are under the oversight of the Centre. In discharging this responsibility, the Centre has apparently failed, which has thrown the country into an unprecedented coal crisis,” said the report.

As a result, CIL production was stagnant at around 600 mt during 2018-19, 2019-20 and 2020-21. The report said that if the funds and manpower had not been diverted, production could have grown at 11 percent, as it was growing in 2015-16, and Coal India would be producing anywhere between 750 and 800 mt.

Need for centralised procurement

“Having created a crisis, the Centre has unilaterally directed states to import coal without caring to take into account the technical implications of using imported coal in power plants,” said the report.

Among its major observations, it pushed for the central government to monitor and control the procurement of imported coal. The Centre alone has the bargaining capacity and administrative ability, through its embassies and other instruments, to obtain the best terms and prices, said the PCPSPS.

According to Co-Chair and former Kerala Finance Minister Thomas Isaac, doing so will be more beneficial than independent import by state governments. The Government of India regulates ports and holds all instruments of policy. Meanwhile, imports by several state governments from the same vendors will reduce the bargaining capacity of states and escalate coal prices.

“The responsibility for the coal crisis rests squarely on the Centre, and it should own it without any hesitation. Forcing states to import coal has encouraged the overseas coal suppliers to quote astronomical prices, implying that they would benefit by earning windfall profits at the cost of states,” said Isaac.

According to report estimates, coal imports would cost Punjab about ₹ 800 cr and Haryana ₹ 1,200 cr. The total additional cost burden on states on account of this would be in excess of ₹ 24,000 cr. The PCPSPS said that the Centre should compensate state governments. If the coal crisis continues, the amount of compensation will be correspondingly higher.

Further, the report said the Centre must ensure that the imported coal is properly blended and sell it through Coal India. The price of such coal should be based on the same principles and basis as that of pricing Indian coal.

Burning different coals without proper blending can damage boilers. Most power plants do not have the necessary facilities for proper blending of coal. Compounding states’ problems of importing coal at astronomical prices, the Centre also invoked its extraordinary powers under the Electricity Act.

As such, the report calls for a balance between the possibility of load shedding and pushing the financial condition of state GENCOs and DISCOMS. The present policy will weaken DISCOMs’ finances and benefit private companies, it said.

Policy moves by GoI

The GoI imposed a minimum 10 percent of imported coal by the States. If there are shortfalls, it penalises states with corresponding cuts in domestic coal supplies. Similarly, it allowed the IPPs to import coal and pass on the full coal import cost to state utilities, deviating from existing PPAs terms. Though earlier the Centre took umbrage at state government attempts to renegotiate regressive PPAs signed with the IPPs. The report also criticised the GoI’s lack of attempt to either cap import price or use its bargaining power to decrease the same.

“This is very critical in view of the fact that the private overseas coal suppliers, many of whom are also domestic companies in India, have quoted prices far in excess of the cost of production to earn windfall profits at the cost of states,” said the report.

Policies that benefit private interests

Aside from this lethargic attitude, the report noted that some private Indian companies owning overseas coal mines profited at the cost of state utilities when coal was required in the past. The Enforcement Directorate and other investigating agencies have undertaken investigations against these entities.

However, there have been enormous delays in investigating the Directorate of Revenue Intelligence’s (DRI) Show Cause notices to the tune of about ₹ 30,000 cr. This despite a Supreme Court order staying the Bombay High Court order that quashed DRI letters. The letters sought information about a corporate group allegedly over-invoicing ₹ 29,000 cr and exercising enormous influence with the government of the day regarding Indonesian imports.

Seeking possible correlation between market transactions and import orders issued by the Power Ministry, the report noted that India’s April import of Coal was 15.92 million tonnes. Whereas in March the import was 21.79 million tonnes.

Bloomberg on May 19 said that the bullishness in coal prices helped flagship firm Adani Enterprises Ltd. get a 30 percent jump in profit for the three months ending March – the highest in six quarters. Further, the GoI by giving away Coal India’s greenfield blocks to private companies, has failed in supervising private mines.

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