Letter by Shri E A S Sarma, former Secretary to Government of India to Union Coal Secretary
The current coal crisis and the resultant power crisis is the result of the policy of promoting private coal mining at the cost of the public sector. Public sector coal mines have been deprived of resources to increase their production and asked to hand over coal blocks to private monopolies. If private coal mines had produced as per the target, there would have been no shortage of coal, nor any power crisis. However, private monopolies produce only when profitable for them. As a result of the policy of privatisation, people will pay the price of Rs 40,000 crore just during this year for importing coal to make up for the shortfall. The beneficiaries of import of coal will be coal trading monopolies and Indian corporates who own coal mines in other countries. People will be paying for enriching big capitalists.
To
Shri A K Jain
Union Coal Secretary
Dear Shri Jain,
I had written to the Cabinet Secretary earlier on 5-5-2022 (https://countercurrents.org/2022/05/private-companies-exploiting-the-state-power-utilities-with-active-support-from-central-ministries/) about the likely factors that were responsible for the unprecedented coal crisis that has crippled the economy. Partly, the failure on the part of the private coal franchisees to deliver coal as per the expected levels has been a contributing factor. Some of these developers who also own overseas coal mines have not only gone slow on the domestic blocks but also fully exploited the scarcity and are quoting astronomical prices for coal to be delivered from their overseas mines to the State power utilities.
Most of these private coal developers have neither the experience nor the expertise of the CIL. In the first instance, your Ministry should have been circumspect in dispossessing a highly competent CPSE like the CIL of its greenfield blocks and handing them over to private companies. Had the CIL been allowed to retain those coal blocks and permitted to utilise its surplus funds, without having to pay unconscionably high dividends to the government, for reinvesting on those blocks, it would have enlarged its shelf of projects considerably and delivered coal on time for adequately meeting the increasing demand for it over the years. By adopting such an approach, the nation would have averted the crisis altogether and saved the itself of an enormous cost burden by avoiding coal imports.
On an average, as per the latest quotations received by the State power utilities, the difference between the landed cost of domestic coal and that of imported coal works out to Rs 20,000 per tonne. Assuming that the power utilities are forced to import in excess of 20 million tonnes of coal immediately, this implies an additional cost burden of more than Rs 40,000 Crores unfairly forced on them.
As far as the private coal developers are concerned, your Ministry has so far auctioned to them coal blocks with an annual coal production capacity of more than 25% of CIL’s production. Your ministry was recently reported (https://www.moneycontrol.com/news/power/expect-58-coal-blocks-to-be-operational-in-fy23-production-of-around-138-28-million-tonnes-govt-8638861.html) to have disclosed that, during 2021-22, 47 such coal blocks which became operational produced 85 million tonnes, apparently falling heavily short of what they were expected to deliver as per the approved mine development plans. In the current year, with 11 more blocks becoming operational, the expected production will be only 138 million tonnes, compared to a planned production level of 204 million tonnes. This shows that, had the private developers conformed to their respective mining plans and delivered coal as planned, they would have more than bridged the supply-demand gap of 20 million tonnes that has led to the present crisis. Therefore, the current coal crisis is directly attributable to their failure to come up to expectations. Most of these franchisees, already indebted to the CPSE banks heavily, would have brought in very little equity of their own and borrowed heavily once again from the same banks. On one side, they have contributed to the coal crisis and on the other side, they are also perhaps going to burden the CPSE banks with additional NPAs. Some among them also operate their own overseas coal mines and have had no hesitation to exploit the crisis created by them by quoting unreasonably high prices for coal to be supplied to the State power utilities, which have been forced to resort to imports. In other words, indirectly facilitated by the Centre, those private franchisees have grabbed the coal crisis as an opportunity and are profiteering at the cost of the State power utilities and at the cost of the nation!
It is ironic that the present coal crisis is a collective doing of the concerned agencies at the Centre, whereas the Centre is trying to place the blame on the States and forcing them to import coal literally at a gun-point, using a package of threats and penalties, all leading to a few business houses having overseas coal mines to be the undue beneficiaries. While some of those business houses may be contributing to the coffers of the political parties by way of electoral donations, they should not be allowed to take the country to ransom by creating a coal scarcity and exploiting it.
Your Ministry should identify all such business houses who are earning windfall profits using the coal crisis as a business opportunity and subject them to exemplary penalties. It will be ironic if they are to be left scot-free and the State power utilities punished for something for which the States are in no way responsible.
Against this background, I have the following specific proposals for your urgent consideration.
- Identify the franchisees who have failed to deliver coal as per the approved plans and issue notices to them immediately proposing revocation of their franchises
- Impose a penalty on them, equivalent to not less than the cost of the shortfall in production calculated at Rs 20,000 per tonne, which is the additional cost arising from forced imports
- Identify those among them having either directly or indirectly overseas coal mines and who have quoted exorbitant prices for coal to be supplied to the power utilities. Since they have not acted in the national interest, they do not deserve to hold the auctioned blocks any longer. Those blocks should straightway revert to the CIL
While I have demanded an independent enquiry into this unfortunate coal-rail crisis, there is a strong case for revisiting the role of the CIL.
Your Ministry should in the first instance appreciate the circumstances that led to coal nationalisation in the seventies and the overarching role that the then government expected from the newly created CIL. When the CIL was set up, the then government at the Centre expected that the newly created CPSE should not only function as the primary coal producer in the country but also as the main explorer and developer of new coal deposits to be able to enhance the inventory of coal deposits at the national level. There is no question of the CIL having any role other than that. Any attempt to weaken the CIL in any manner would run counter to the national interest. Unless this is realised and the CIL is allowed to be the predominant explorer and developer of coal in the country, I am afraid that the nation is going to face a crisis situation of the kind witnessed now, not once or twice but again and again.
For example, the country witnessed a serious coal supply crisis in 2021 and your Ministry had tried to use the Covid second wave as an alibi for it. Once again, we are facing a crisis today, worse than the 2021 crisis. One should not be surprised if the nation is confronted with similar crises again and again in the coming months. If such a situation is allowed to continue, it will cost the nation dearly.
I would caution your Ministry not to adopt a kid-glove treatment in dealing with the errant private coal franchisees, as some of them have acted against the national interest and they deserve no consideration whatsoever.
Regards,
Yours sincerely,
E A S Sarma
Former Secretary to Govt of India
Visakhapatnam
06/06/2022