De-allocation of coal blocks

Recently, the government issued letters de-allocating coal blocks of various companies, based on the recommendations of the  Inter Ministerial Group (IMG).  This post discusses the history behind the de-allocations, the parameters the IMG used while examining the progress of various coal blocks and the action that has been taken by the government. The Comptroller and Auditor General (CAG) released a performance audit report on 'Allocation of Coal Blocks and Augmentation of Coal Production' on August 17, 2012.  Some of the key findings of the Report were:

  • The government failed to conduct competitive bids for the allocation of coal blocks.  This resulted in a benefit of  Rs 1.86 lakh crore (approx.) to private allottees.  The government could have tapped some of this financial benefit by expediting the decision on competitive bidding for allocation of coal blocks.
  • The implementation schedule of a number of coal blocks has been delayed by one to ten years.  This schedule relates to the time frame within which the Mining Plan for the block has to be approved, various clearances have to be submitted, land acquired, etc.
  • From 2005, the Ministry of Coal (MoC) required the allottees to provide bank guarantees which would be encashed if they failed to meet the above mentioned milestones.  The CAG observed that there was a delay in introducing the bank guarantee and linking it with milestones.

The IMG on Coal was constituted for the periodic review of the development of coal blocks and end use plants.  The IMG had requested a status paper from the Coal Controller, MoC.  This has been submitted to the IMG but is not available.  The IMG will decide if private allottees have made substantial progress based on certain parameters.  The parameters used by IMG are:  approval of Mining Plan, status of environment and forest clearance, grant of mining lease and progress made in land acquisition. They are also examining the physical status of End Use Plant (EUP), investment made and the expected date of opening of the mine and commissioning of EUP. The IMG has made the following recommendations:

  • The coal blocks of companies that have not made substantial progress should be de-allocated.  Additionally, they have recommended the deduction of bank guarantee in the cases where the private companies have not reached the milestones as per the time line decided upon.  As of November 22, 2012, the IMG has recommended the de-allocation of the coal blocks listed in Table 1 and the deduction of bank guarantees for the coal blocks in Table 2.
  • Since, the system of bank guarantee was only introduced in March 2005, not all coal blocks had submitted a bank guarantee.  Where a bank guarantee has not been provided but there is substantial progress in meeting the milestones, the IMG may require the allottee to submit a bank guarantee.
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Of the coal blocks that the IMG has recommended for de-allocation, until now the government has accepted the de-allocation of the following: Bramhadih block, Gourangdih, New Patrapara, Chinora block, Warora (Southern Part) block, Lalgarh (North) block, Bhaskarpara block, Dahegaon/Makardhokra-IV block, Gondkhari block and Ramanwara North block.  The government has accepted the deduction of bank guarantees for blocks such as Moitra, Jitpur, Bhaskarpara, Durgapur II/Sariya, Dahegaon/Makardhokra-IV, Marki Mangli II, III and IV, Gondhkari, Lohari, Radhikapur East, Bijahan and Nerad Malegaon. The letters issued by the government de-allocating coal blocks and deducting bank guarantees are available here.

For a detailed summary of the CAG Report, click here.

Power situation in Tamil Nadu and other states

Reports suggest that the first reactor of the Kudankulam power plant is close to operational. With state discoms struggling, advocates of nuclear power see Kudankulam as a necessary boost to India’s struggling power sector.  The Kudankulam power plant will have two reactors.  At full capacity, the plant would produce 2 GW of energy, making it India’s largest nuclear plant, and significantly increasing India’s nuclear capacity (currently at 4.8 GW or 2.3% of  total capacity). Internationally, nuclear power plants contributed 12.3 % of the world's electricity production in 2011.  In terms of number of nuclear reactors, India ranks 6th in the world with 20 nuclear reactors (in seven power stations across five states: Rajasthan, Uttar Pradesh, Gujarat, Karnataka and Tamil Nadu).  The Kudankulam power station would be Tamil Nadu’s second power station after the Madras Atomic Power Station (MAPS). Tamil Nadu is struggling to meet electricity demand, recently moved the Supreme Court, asking the Centre for more power. Peak demand deficit (the difference between electricity supply and demand at peak periods) in the state was 17.5% in 2011-12.  The per capita consumption of electricity in the state was 1,132 kWh in 2009-10, significantly greater than the India average of 779 kWh.  Currently, electricity in Tamil Nadu is fueled by a mixture of coal (35% of capacity), renewable sources (42%) and hydro sources (12%).  A fully operational Kudankulam reactor would boost Tamil Nadu’s capacity by 6% (including state, private and centrally owned generating entities). The interactive table below provides a state-level breakdown of key power sector indicators.  To view data in ascending or descending order, simply click the relevant column heading.  (For a detailed overview of the power sector and even more state-wise statistics, see here.) [table id=4 /]   Source: Central Electricity Authority; Planning Commission; PRS. Note: capacity for states includes allocated shares in joint and central sector utilities. T&D (transmission and distribution) losses refer to losses in electricity in the process of delivery  

N(I)AB-ing that environmental clearance

There has been much discussion about bringing the GDP growth on track and the need for expediting infrastructure projects in this regard. At the Planning Commission Meeting to approve the Twelfth Five Year Plan, last month, there were concerns about the  implementation of such  projects because of the delay in the grant of environment and forest clearances. In this context, there has been talk of setting up a singular body that will grant approvals for large infrastructure projects. News reports suggest that the government is considering forming a National Investment Approval Board (NIAB). The NIAB will be responsible for expediting the clearances for mega project proposals above a certain financial threshold. The Board would be headed by the Prime Minister and will have the authority to provide the ‘final decision’ on investment projects. According to news reports, the NIAB will be the final decision making body. The Ministry of Environment & Forests (MoEF) has raised concerns that this would create ambiguity in the current process of granting clearance for projects. While the formation of the NIAB is still being deliberated and discussed, it would be relevant to understand the process that the MoEF follows before granting clearance to a project and look at data on number of clearances granted and pending. The MoEF has developed certain processes to examine the potential environmental impact of new projects or expansion of existing projects. These are contained in the Environment Impact Assessment Notification, 2006. This notification empowers the Expert Appraisal Committees (EAC) to review the environmental impact of projects. The EAC carries out a combination of these steps depending on the classification of the project:

  • Screening: To determine whether the project requires further study for preparing the Environmental Impact Assessment (EIA).
  • Scoping: Setting clear guidelines that state the environmental concerns identified in the project.
  • Public Consultation: To ascertain the concerns of the local persons affected by the environmental impacts of the project.
  • Appraisal: The EAC studies the application, final EIA report, and outcome of the public consultations and makes its recommendations to the MoEF.

The MoEF considers the grant of environmental clearance to development projects in terms of the provisions of EIA Notification, 2006. From July 13, 2011 to July 12, 2012 the MoEF has given environmental clearances to 209 development projects. For a sector wise break up see Table 1. Table 1: Number of Environment Clearances Accorded

Sector No.  of  projects accorded EC
Industry (Steel & Cement)


Thermal Power


River Valley and Hydro-electric


Coal Mining


Non-Coal Mining


National Highways




Source: “Environmental Clearance accorded from 13.07.2011 to 12.07.2012”, MoEF A total of 593 proposals are pending for environmental clearance as on August 13, 2012.[i] It remains to be seen how the process of granting clearances as established by the MoEF will be reconciled with the expedited process of the NIAB.

[i] MoEF, Lok Sabha, Unstarred Question no. 637, August 13, 2012,

CAG Performance Audit on the Allocation of Coal Blocks

The Comptroller and Auditor General (CAG) released a Performance Audit of Allocation of Coal Blocks and Augmentation of Coal Production, on August 17, 2012.  Some of the main findings and recommendations of the report are highlighted below:

  • There were no criteria for allocating coal blocks for captive mining till 1993.  The process of bringing in transparency and objectivity began in January 2004.  However, the process has experienced delays and had yet to materialise as of February 2012.
  • In the intervening period, 194 coal blocks with geological reserves of 44,440 million tonnes were allocated to private and government parties until March 31, 2011.  The report finds that the benefit to private allottees has been estimated at Rs 1.86 lakh crore for Opencast mines.  The report states that the government could have tapped some of this financial benefit by expediting the decision on competitive bidding for allocation of coal blocks.
  • The rate of increase in production of coal by Coal India Limited (CIL) during the 11th Plan period remained below the target set by the Planning Commission.  Capacity addition projects were delayed due to the lack of coordination of government agencies involved in statutory clearances and land acquisition.  There were mismatches in excavation and transportation capacities of mines, and suboptimal use of Heavy Earth Moving Machinery.
  • The CAG recommends that Ministry of Coal (MOC) should work out modalities to implement the procedure of allocation of coal blocks for captive mining through competitive bidding.
  • The CAG recommends that the MOC should constitute an empowered group along the lines of Foreign Investment Promotion Board as a single window mechanism for granting clearances, with representatives from central nodal ministries and state governments.

A one-page summary of the main findings and recommendations can be accessed here.  The full report can be accessed on the CAG website.

Power producers refuse to sign supply agreements with Coal India

There has been no resolution so far to the issue of assured fuel supply from Coal India Limited (CIL) to power producers.  According to reports, while CIL released a model supply agreement in April 2012, so far only around 13 Fuel Supply Agreements (FSAs) have been signed.  Originally around 50 power units were expected to sign FSAs with CIL.  Power producers have objected to the model FSA released by CIL, particularly its force majeure provisions and the dilution of financial penalties in case of lower than contracted supply. Background The adverse power supply situation has attracted greater attention in the past few months.  According to Central Electricity Authority's data, the gap between peak demand and peak supply of power in March 2012 was 11 per cent.  The decreasing availability of fuel has emerged as a critical component of the worsening power supply situation.  As of March 31, 2012, there were 32 critical thermal power stations that had a coal stock of less than 7 days.  The gap between demand and supply of coal in the past three years is highlighted below: Table 1: Coal demand/Supply gap (In millions of tonnes)

















Source: PIB News Release dated May 7, 2012

Coal accounts for around 56 per cent of total installed power generation capacity in India.  Increased capacity in thermal power has also accounted for almost 81 per cent of the additional 62,374 MW added during the 11th Plan period.  Given the importance of coal in meeting national energy needs, the inability of CIL to meet its supply targets has become a major issue.  While the production target for CIL was 486 MT for 2011-12, its actual coal production was 436 MT. Fuel Supply Agreements In March 2012, the government asked CIL to sign FSAs with power plants that have been or would be commissioned by March 31, 2015.  These power plants should also have entered into long term Power Purchase Agreements with distribution companies.  After CIL did not sign FSAs by the deadline of March 31, 2012 the government issued a Presidential Directive to CIL on April 4, 2012 directing it to sign the FSAs.  The CIL board approved a model FSA in April 2012, which has not found acceptance by power producers. According to newspaper reports, many power producers have expressed their dissatisfaction with the model FSA released by CIL.  They have argued that it differs from the 2009 version of FSAs in some major ways.  These include:

  • The penalty for supplying coal below 80 per cent of the contracted amount has been reduced from 10 per cent to 0.01 per cent.  The penalty will be applicable only after three years.
  • The new FSA has extensive force majeure provisions that absolve CIL of non-supply in case of multiple contingencies – including equipment breakdown, power cuts, obstruction in transport, riots, failure to import coal due to “global shortage or delays… or no response to enquiries (by CIL) for supply of coal.”
  • CIL would have the discretion to annually review the supply level that would trigger a financial penalty.  There was no provision for such a review in the earlier FSA.

Most power producers, including NTPC, the country’s biggest power producer, have refused to sign the new FSA.  Reports suggest that the Power Minister has asked the Prime Minister’s Office to mandate CIL to sign FSAs within a month based on the 2009 format.  CIL has received a request from NTPC to consider signing FSAs based on the same parameters as their existing plants, but with the revised trigger point of 80 per cent (down from 90 per cent earlier). Underlying this situation is CIL’s own stagnating production.  Various experts have pointed to the prohibition on private sector participation in coal mining (apart from captive projects) and the backlog in granting environment and forest clearances as having exacerbated the coal supply situation.