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Earlier this week, Lok Sabha passed the Bill that provides for the allocation of coal mines that were cancelled by the Supreme Court last year.  In light of this development, this post looks at the issues surrounding coal block allocations and what the 2015 Bill seeks to achieve.

In September 2014, the Supreme Court cancelled the allocations of 204 coal blocks.  Following the Supreme Court judgement, in October 2014, the government promulgated the Coal Mines (Special Provisions) Ordinance, 2014 for the allocation of the cancelled coal mines.  The Ordinance, which was replaced by the Coal Mines (Special Provisions) Bill, 2014, could not be passed by Parliament in the last winter session, and lapsed. The government then promulgated the Coal Mines (Special Provisions) Second Ordinance, 2014 on December 26, 2014.  The Coal Mines (Special Provisions) Bill, 2015 replaces the second Ordinance and was passed by Lok Sabha on March 4, 2015. Why is coal considered relevant? Coal mining in India has primarily been driven by the need for energy domestically.  About 55% of the current commercial energy use is met by coal.  The power sector is the major consumer of coal, using about 80% of domestically produced coal. As of April 1, 2014, India is estimated to have a cumulative total of 301.56 billion tonnes of coal reserves up to a depth of 1200 meters.  Coal deposits are mainly located in Jharkhand, Odisha, Chhattisgarh, West Bengal, Madhya Pradesh, Andhra Pradesh and Maharashtra. How is coal regulated? The Ministry of Coal has the overall responsibility of managing coal reserves in the country.  Coal India Limited, established in 1975, is a public sector undertaking, which looks at the production and marketing of coal in India.  Currently, the sector is regulated by the ministry’s Coal Controller’s Organization. The Coal Mines (Nationalisation) Act, 1973 (CMN Act) is the primary legislation determining the eligibility for coal mining in India.  The CMN Act allows private Indian companies to mine coal only for captive use.  Captive mining is the coal mined for a specific end-use by the mine owner, but not for open sale in the market.  End-uses currently allowed under the CMN Act include iron and steel production, generation of power, cement production and coal washing.  The central government may notify additional end-uses. How were coal blocks allocated so far? Till 1993, there were no specific criteria for the allocation of captive coal blocks.  Captive mining for coal was allowed in 1993 by amendments to the CMN Act.  In 1993, a Screening Committee was set up by the Ministry of Coal to provide recommendations on allocations for captive coal mines.  All allocations to private companies were made through the Screening Committee.  For government companies, allocations for captive mining were made directly by the ministry.  Certain coal blocks were allocated by the Ministry of Power for Ultra Mega Power Projects (UMPP) through tariff based competitive bidding (bidding for coal based on the tariff at which power is sold).  Between 1993 and 2011, 218 coal blocks were allocated to both public and private companies under the CMN Act. What did the 2014 Supreme Court judgement do? In August 2012, the Comptroller and Auditor General of India released a report on the coal block allocations. CAG recommended that the allocation process should be made more transparent and objective, and done through competitive bidding. Following this report, in September 2012, a Public Interest Litigation matter was filed in the Supreme Court against the coal block allocations.  The petition sought to cancel the allotment of the coal blocks in public interest on grounds that it was arbitrary, illegal and unconstitutional. In September 2014, the Supreme Court declared all allocations of coal blocks, made through the Screening Committee and through Government Dispensation route since 1993, as illegal.  It cancelled the allocation of 204 out of 218 coal blocks.  The allocations were deemed illegal on the grounds that: (i) the allocation procedure followed by the Screening Committee was arbitrary, and (ii) no objective criterion was used to determine the selection of companies.  Further, the allocation procedure was held to be impermissible under the CMN Act. Among the 218 coal blocks, 40 were under production and six were ready to start production.  Of the 40 blocks under production, 37 were cancelled and of the six ready to produce blocks, five were cancelled.  However, the allocation to Ultra Mega Power Projects, which was done via competitive bidding for lowest tariffs, was not declared illegal. What does the 2015 Bill seek to do? Following the cancellation of the coal blocks, concerns were raised about further shortage in the supply of coal, resulting in more power supply disruptions.  The 2015 Bill primarily seeks to allocate the coal mines that were declared illegal by the Supreme Court.  It provides details for the auction process, compensation for the prior allottees, the process for transfer of mines and details of authorities that would conduct the auction.  In December 2014, the ministry notified the Coal Mines (Special Provisions) Rules, 2014.  The Rules provide further guidelines in relation to the eligibility and compensation for prior allottees. How is the allocation of coal blocks to be carried out through the 2015 Bill? The Bill creates three categories of mines, Schedule I, II and III.  Schedule I consists of all the 204 mines that were cancelled by the Supreme Court.  Of these mines, Schedule II consists of all the 42 mines that are under production and Schedule III consists of 32 mines that have a specified end-use such as power, iron and steel, cement and coal washing. Schedule I mines can be allocated by way of either public auction or allocation.  For the public auction route any government, private or joint venture company can bid for the coal blocks.  They can use the coal mined from these blocks for their own consumption, sale or for any other purpose as specified in their mining lease.  The government may also choose to allot Schedule I mines to any government company or any company that was awarded a power plant project through competitive bidding.  In such a case, a government company can use the coal mined for own consumption or sale.  However, the Bill does not provide clarity on the purpose for which private companies can use the coal. Schedule II and III mines are to be allocated by way of public auction, and the auctions have to be completed by March 31, 2015.  Any government company, private company or a joint venture with a specified end-use is eligible to bid for these mines. In addition, the Bill also provides details on authorities that would conduct the auction and allotment and the compensation for prior allottees.  Prior allottees are not eligible to participate in the auction process if: (i) they have not paid the additional levy imposed by the Supreme Court; or (ii) if they are convicted of an offence related to coal block allocation and sentenced to imprisonment of more than three years. What are some of the issues to consider in the 2015 Bill? One of the major policy shifts the 2015 Bill seeks to achieve is to enable private companies to mine coal in the future, in order to improve the supply of coal in the market.  Currently, the coal sector is regulated by the Coal Controller’s Organization, which is under the Ministry of Coal.  The Bill does not establish an independent regulator to ensure a level playing field for both private and government companies bidding for auction of mines to conduct coal mining operations.   In the past, when other sectors have opened up to the private sector, an independent regulatory body has been established beforehand.  For example, the Telecom Regulatory Authority of India, an independent regulatory body, was established when the telecom sector was opened up for private service providers.  The Bill also does not specify any guidelines on the monitoring of mining activities by the new allottees. While the Bill provides broad details of the process of auction and allotment, the actual results with regards to money coming in to the states, will depend more on specific details, such as the tender documents and floor price.  It is also to be seen whether the new allotment process ensures equitable distribution of coal blocks among the companies and creates a fair, level-playing field for them.  In the past, the functioning of coal mines has been delayed due to delays in land acquisition and environmental clearances.  This Bill does not address these issues.  The auctioning of coal blocks resulting in improving the supply of coal, and in turn addressing the problem of power shortage in the country, will also depend on the efficient functioning of the mines,  in addition to factors such as transparent allocations.

On March 14, 2022 Rajya Sabha discussed the working of the Ministry of Development of North Eastern Region (DoNER).  During the discussion, several issues around budgetary allocation, implementation of schemes and connectivity with the North Eastern Region were discussed.  The Ministry of DoNER is responsible for matters relating to the planning, execution and monitoring of development schemes and projects in the North Eastern Region.  In this blog post, we analyse the 2022-23 budgetary allocations for the Ministry and discuss related issues.  

A new scheme named PM-DevINE announced to boost infrastructure and social development

In 2022-23, the Ministry has seen a 5% increase in allocation from the revised estimates of 2021-22.  The Ministry has been allocated Rs 2,800 crore which will be used for various development schemes, such as the North East Special Infrastructure Development Scheme and North East Road Sector Development Scheme.  A scheme-wise break-up of the budget allocation for the Ministry is given below in Table 1.  

One of the key highlights of the Finance Minister’s Budget Speech was the announcement of a new scheme named the Prime Minister’s Development Initiative for North East (PM-DevINE).  It will be implemented through the North East Council (nodal agency for the economic and social development of the North Eastern Region).  PM-DevINE will fund infrastructure and social development projects in areas such as road connectivity, health, and agriculture.  The scheme will not replace or subsume existing central sector or centrally sponsored schemes.  The Scheme will be given an initial allocation of Rs 1,500 crore.

Table 1: Break-up of allocation to the Ministry of DoNER (in Rs crore)

Major Heads

2020-21 Actuals

2021-22 BE

2021-22 RE

2022-23 BE

% change from 2021-22 RE to 2022-23 BE

North East Special Infrastructure Development Scheme

446

675

674

1,419

111%

Schemes of North East Council

567

585

585

702

20%

North East Road Sector Development Scheme

416

696

674

496

-26%

Central pool of resources for North East and Sikkim

342

581

581

-

-

Others

270

322

344

241

-30%

Total

1,854

2,658

2,658

2,800

5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note: BE – Budget Estimate; RE – Revised Estimate; Schemes for North East Council includes Special Development Projects.

Sources: Demand No. 23 of Union Budget Documents 2022-23; PRS. 

Allocation towards capital outlay less than demand

The Standing Committee on Home Affairs (2022) noted that the amount allocated at the budget stage in 2022-23 (Rs 660 crore) was 17% less than the demand by the Ministry (Rs 794 crore).  Capital expenditure includes capital outlay which leads to the creation of assets such as schools, hospitals, and roads and bridges.  The Committee observed that this may severely affect the implementation of several projects and schemes that require capital outlay.  It recommended the Ministry to take up this matter with the Finance Ministry and demand additional assistance at the revised stage of the 2022-23 financial year.

Underutilisation of funds over the years

Since 2011-12 (barring 2016-17), the Ministry has not been able to utilise the funds allocated to it at the budgeted stage (See Figure 1).  For instance, in 2020-21, fund utilisation in case of the North East Road Sector Development Scheme was 52%, whereas only 34% of funds were utilised under the North East Special Infrastructure Development Scheme (for infrastructure projects relating to water supply, power, connectivity, social infrastructure).  Key reasons for underspending highlighted by the Ministry include late receipt of project proposals and non-receipt of utilisation certificates from state governments.

Figure 1: Underutilisation of funds by the Ministry since 2011-12

image
 Note: Revised Estimate has been used as the Actual Expenditure for 2021-22.
 Sources: Union Budget Documents (2011-12 to 2022-23); PRS
.

Delay in project completion

The Ministry implements several schemes for infrastructural projects such as roads and bridges.  The progress of the certain schemes has been inadequate.   The Standing Committee (2022) observed that the physical progress of many road sector projects under the North East Road Sector Development Scheme is either at zero or in single digit percent in spite of release of the amount for the project.  Similarly, projects under the Karbi Anglong Autonomous Territorial Council (autonomous district council in Assam) and Social and Infrastructure Development Fund (construction of roads, bridges, and construction of schools and water supply projects in the North Eastern Region) have seen inadequate progress.

Need to address declining forest cover

The Standing Committee (2021) has also recommended the Ministry of DoNER to work towards preserving forest cover.  The Committee took note of the declining forest cover in the North East India.  As per the India State of Forest Report (2021), states showing major loss of forest cover from 2019 to 2021 are: (i) Arunachal Pradesh (loss of 257 sq km of forest cover), (ii) Manipur (249 sq km), (iii) Nagaland (235 sq km), (iv) Mizoram (186 sq km), and (v) Meghalaya (73 sq km).  The loss of forest cover may be attributed to shifting cultivation, cutting down of trees, natural calamities, anthropogenic (environmental pollution) pressure, and developmental activities.  The Committee recommended that various measures to protect the forest and environment must be given priority and should implemented within the stipulated timeline.  It also suggested the Ministry to: (i) carry out regular plantation drives to increase forest cover/density, and (ii) accord priority towards the ultimate goal of preserving and protecting the forests under various centrally sponsored initiatives.

Key issues raised by Members during discussion in Rajya Sabha

The discussion on the working of the Ministry of DoNER took place in Rajya Sabha on March 14, 2022.  One of the issues highlighted by members was about the Ministry not having its own line Department.  This leads to the Ministry being dependent on the administrative strength of the states for implementation of projects.  Another issue highlighted by several members was the lack of connectivity of the region through railways and road networks which hampers the economic growth of region.  The DoNER Minister in his response to the House assured the members that the central government is making continuous efforts towards improving connectivity to the North East region through roads, railways, waterways, and telecommunication.         

Allocation by Union Ministries to the North East 

Union Ministries allocate 10% of their budget allocation for the North East (See Figure 2 for fund allocation and utilisation).  The Ministry of DoNER is the nodal Ministry that monitors and keeps track of the allocation done by various Ministries.  In 2022-23, Rs 76,040 crore has been allocated by all the Ministries for the North Eastern region.  The allocation has increased by 11% from the revised estimate of 2021-22 (Rs 68,440 crore).   In 2019-20 and 2021-21 the actual expenditure towards North Eastern areas was lower than budget estimates by 18% and 19% respectively.  

Figure 2: Budgetary allocation by all Union Ministries for the North East (amount in Rs crore)

image   

Source: Report No. 239: Demand for Grants (2022-23) of Ministry of Development of North Eastern Region, Standing Committee on Home Affairs; PRS.