De-allocation of coal blocks

Jhalak - November 22, 2012

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.

[table id=1 /]

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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.

Legislation

Challenges emanating from the AERA (Amendment) Bill, 2021

Aditya Kumar - August 6, 2021

The Airports Economic Regulatory Authority of India (Amendment) Bill, 2021 was passed by Parliament on August 4, 2021. It amends the Airports Economic Regulatory Authority of India Act, 2008. This Bill was introduced in Lok Sabha during the budget session this year in March 2021. Subsequently, it was referred to the Standing Committee on Transport, Tourism, and Culture, which submitted its report on July 22, 2021.

Typically, cities have one civilian airport which provides all aeronautical services in that area. These services include air traffic management, landing and parking of aircraft, and ground handling services. This makes airports natural monopolies in the area. To ensure that private airport operators do not misuse their monopoly, the need for an independent tariff regulator in the airport sector was felt. Hence, the Airport Economic Regulatory Authority (AERA) was established as an independent body under the 2008 Act to regulate tariffs and other charges (development fee and passenger service fee) for aeronautical services at major airports.

For the remaining airports, these tariffs are determined by the Airports Authority of India (AAI), which is a body under the Ministry of Civil Aviation. In addition, AAI leases out airports under the public-private partnership (PPP) model for operation, management, and development. Before AERA was set up, AAI determined and fixed the aeronautical charges for all airports. It also prescribed performance standards for all airports and monitored them. Various committees had noted that AAI performed the role of airport operator as well as the regulator, which resulted in a conflict of interest.

The 2008 Act designates an airport as a major airport if it has an annual passenger traffic of at least 35 lakh. The central government may also designate any airport as a major airport through a notification. The Bill adds that the central government may group airports and notify the group as a major airport. Thus, when a small airport will be clubbed in a group and the group is notified as a major airport, its tariff will be determined by AERA instead of AAI. Note that AERA will not determine the tariff if such tariff or tariff structures or the amount of development fees has been incorporated in the bidding document, which is the basis for the award of operatorship of that airport.

The amendments under the Bill raise some concerns regarding the grouping of airports and the capacity of the regulator.

Grouping of airports: The Statement of Objects and Reasons of the Bill states that government will club together profit-making and loss-making airports and offer them as a package in PPP mode to the prospective bidders. This may be a policy decision to revive loss-making airports. With the passage of the Bill, AERA will treat a group of airports as one entity. One of the ways in which tariffs may be structured for the grouped entity would be through cross-subsidies. This would involve compensating loss-making airports with the revenue generated from the profit-making airports. If such a model is used, it may increase the cost of services to the end-consumers of profit-making airports or could reduce the profitability of such airports. The experiences from other sectors such as electricity show that cross-subsidisation may lead to pricing problems in long term.
Capacity of the regulator: AERA was created to provide a level playing field in the aviation sector and resolve the conflict of interest that arises with AAI both operating and regulating tariffs at airports. During the examination of the AERA Bill, 2007 by the Standing Committee, the Ministry of Civil Aviation informed the Committee that AERA should regulate tariff and monitor performance standards only at major airports. Depending upon future developments in the sector, and as the regulator built its capacity, other functions could be subsequently assigned to the regulator.

As of 2020, there are 125 operational airports in India (includes international airports, customs airports, and civil enclaves). The number of airports under the purview of AERA increased from 11 in 2007 to 24 in 2019. For the remaining airports, tariffs are still determined by AAI. In the last five years (2014 to 2019), air passenger traffic increased from 11.3 crore to 34.9 crore (which is an annual growth rate of 10%). Till 2030-31, air traffic in the country is expected to continue growing at an average annual rate of 10-11%.

Before 2019, an airport with annual passenger traffic of at least 15 lakh was considered a major airport. In 2019, the AERA Act was amended to increase this threshold to 35 lakh. The Statement of Objects and Reasons of the 2019 Bill stated that the exponential growth of the aviation sector has put tremendous pressure on AERA, while its resources are limited. Therefore, if too many airports come under the purview of AERA, it will not be able to perform its functions efficiently. Consequently, in 2019, the number of airports under the purview of AERA was reduced. Now, with the passage of the 2021 Bill, AERA will have to again regulate tariffs at more airports as and when notified by the central government. Thus, the capacity of AERA may be needed to be enhanced for extending its scope to other airports.

Table 1: List of major airports in India (as of June 2019)

Ahmedabad	Delhi	Mumbai
Amritsar	Goa	Patna
Bengaluru	Guwahati	Pune
Bhubaneswar	Hyderabad	Raipur
Calicut	Jaipur	Thiruvananthapuram
Chandigarh	Kolkata	Tiruchirappalli
Chennai	Lucknow	Varanasi
Cochin	Mangalore	Kannur

Source: AERA website as accessed on August 2, 2021; PRS.

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