NEW DELHI: The Comptroller and Auditor General’s final report on the allocation of coal blocks has concluded the government did not follow a transparent policy in selecting beneficiaries and was wrong in ignoring a 2004 recommendation by the secretary in the coal ministry that mines should be awarded through competitive bidding.
The report, whose conclusions were described to ET by people familiar with its content, will be presented to Parliament during the monsoon session. The people familiar with the report said the CAG has concluded that no information was available on how a company was chosen to mine a particular coal block.
A senior government official, among the people who described the key features of the report, said one of the CAG’s core conclusions was that competitive bidding should have been adopted to allot coal mines instead of following what the government auditor describes as an “opaque” policy that remained in place in February 2012. The report says the potential gain to companies allotted blocks was Rs 1,86,000 crore, a number first reported by The Times of India. The beneficiaries include Jindal Steel and Power and a joint venture between the Tatas andSouth Africa’s Sasol, among others.
Prime Minister Manmohan Singh headed the coal ministry during this period, aided by ministers of state (MoS) Dasari Narayan Rao and Santosh Bagrodia.
The coal secretary at the time, PC Parekh, conceded that there was “pressure” to allocate blocks to certain companies. “Yes, there was pressure and all kinds of people were coming and canvassing,” he said. In 2004, Parekh had presented a note to the then MoS coal, Dasari Narayan Rao, calling for the adoption of competitive bidding for allocation of blocksin keeping norms of transparency.
Rao, a Telegu filmmaker and Congress-supported Rajya Sabha member till early this year, refused to comment on the allegations. The other MoS, Santosh Bagrodia, said that he had “nothing to do with all this,” and said: “I will reply to the concerned people and not to the media.” Coal minister Shri Prakash Jaiswal too declined to comment on the findings and final report of CAG saying he was unaware of the final report, and was yet to see a copy.
Explaining why the current policy of allocating blocks through a screening committee was problematic, Parekh said that applications had to be sponsored by state governments “…and bribes can be paid for the right decisions also”. The screening committee deciding on the allocations is chaired by the coal secretary and has representatives from related ministries, such as power, steel, industry, and state governments.
CAG has alleged in its final report that that there was nothing on record in the minutes of the meetings of the screening committees or in any other document that indicated that the government had carried out comparative evaluation of applicants for a coal block. In other words, there is no clarity on how a company ended up with a particular coal block, said the government official quoted earlier.
“There were wide variations in the commercial value of coal mines, there was no way of making an objective decision,” Parekh said. Claiming that there was no political will to go for competitive bidding, Parekh also said that industry had resisted the proposal, which was put on the backburner after the PMO raised objections in a note on September 11, 2004. “There weren’t any serious objections (in the PMO note) except for a hike in the cost of power,” he said.
Partha Bhattacharya, former chairman of CIL, said that while the objective of allocating mines to other companies apart from CIL was justified, as the state-owned monopoly could not meet demand, there could be objections with cement and steel companies getting the mine free but selling their products at market rates.
On the process of allocation, Bhattacharya said that he had not attended any of the screening committee meetings as there were no CIL blocks that were being given away to other parties.
The CBI has started an investigation into the alleged gains made by private companies, alleged irregularities in allocation and the role of the coal ministry.
According to a senior ministry official, who did not wish to be named, the government’s objective at that point was only to increase coal production as CIL was unable to meet the rising demand. “Revenue generation from scarce natural resources as has been suggested by the Supreme Court in its order on 2G played no role at that point.”
Admitting that some erroneous allocations were made in cases where the committee had failed to judge the financial and technical credibility of the applicant, he said that the coal ministry has cancelled 25 such allocations and is willing to cancel more if there was sufficient proof against the allotted company.
Quoting the February 2012 Supreme Court judgement on 2G spectrum that has called for transparency and competition in allocation of scarce natural resources, the CAG report has said that the coal ministry’s attempts during 2004-06 to introduce competitive bidding were on the same lines, according to the government official in the know who shared information with ET.
The report has concluded that private companies have gained due to the delay in introducing competitive bidding. Based on an average cost of production and an average price of coal sold by CIL from open cast mines, the audit has estimated financial gains of Rs 1.86 lakh crore. Part of this, the report states, could have accrued to the government.
CIL MAY SUPPLY COAL IF PURCHASERS LIFT STOCK DIRECTLY FROM MINES
KOLKATA/MUMBAI: Private power producers will get a new opportunity to get additional supplies of scarce fuel as CoalIndiaplans to supply incremental coal from its bulging stocks if buyers can lift it directly from the mines and make their own transport arrangements.
CoalIndiaChairman Narsing Rao told ET that executives from the state-run firm have already started sending letters to power producers and utilities with offers to lift coal directly from the mines. The move is expected to help private firms get additional supplies as they can take quick decisions but even state firms are willing.
NTPC chairman, Arup Roy Choudhury said: “If they offer crushed coal at the pit heads we are ready to lift it. There may be some logistics issues but we will work it out with CoalIndiaand the Railways.” Many private power firms, which have led the rapid expansion in India’s power capacity in recent years, are unable to commission their plants or run them optimally because Coal India’s supply has stagnated, while stocks of more than 60 million tonnes have piled up because of logistical bottlenecks.
“Depending on the success of this scheme, in the near future, we will allow captive power plants to lift coal from pitheads and may also remove the restriction of limiting supplies from specific mines for all power companies. At present all consumers are linked to specific mines when supply agreements are signed. This may be removed if they lift their own coal,” CoalIndiachairman, Narsing Rao told ET.
“We have asked CoalIndiasubsidiaries to supply coal directly from pit head to independent power producing companies that supply to power utilities or the power utilities themselves. Our officials have also started shooting letters to power producers to start lifting coal from the pitheads. This is for the first time that Coal India is taking such a move and we have also requested the railways to offer sidings for the coal that they will lift from the mines,” he said.
“The move is expected to make increased coal available for power generators and will also enable us to liquidate some of our stocks,” the chairman said.
CoalIndia’s stock position at various mines is about 63 million tonnes as of June 1, 2012. This is about 7 million tonnes lower than the position on March 31, 2012.
During 2011-12, the company added around 1.7 million due to supply bottlenecks. A senior NTPC official said: “The stock lying at mine head is raw coal, it is not crushed and cannot be directly used for transportation or used in the boilers.
However, if they crush it and make it fit for use in boilers we will pick them up.” “At present we do not have infrastructure for picking up this coal, however, we are ready to work it out with CIL and railways,” he added.
Another large public sector thermal power generation company when told about the CIL’s offer said: “Some of their large mines have major logistics issue which is in fact the prime reason for such large coal stocks at their pit heads.
The stocks are also not ready to be used directly in power plants. Plus, we do not have adequate experience in handling coal from the mines head. We will have to take the tendering route which takes time.”
A CIL official on condition of anonymity said: “We feel this offer will help private companies pick up coal rather than public sector ones because the private ones have the independence of finalizing logistics decisions over the table while the public sector companies will have to take the tender route which will take a few months. The private ones are favourably placed to take supplies from pit heads.”
“Utilities would be ready to work together with CIL and Railways to ease the problems,” said Ashok Khurana, director general of Association of Power Producers.
MINING THE COAL MAN OVER MINESTRONE
“We just need three tracks of 100 km each in Odisha, Jharkhand and Chhattisgarh to solve coal availability issues for the country. ” NARSING RAO, CMD, COAL INDIA.
It’s a muggy May afternoon in Kolkata, and around 40 in the shade. We’re glad to slip into the cool confines of the Oberoi Grand, the ‘Grand Dame of Chowringhee’.
The delicate fragrance in the hotel adds to the sense of coolness. We head for the La Terrasse restaurant. Our guest, we have been told, is always bang on time.
Sure enough, on the dot at 1 p.m., Narsing Rao, the 54-year-old Chairman and Managing Director of CoalIndia, comes in beaming.
He’s refreshingly casual. There is no general factotum trotting beside him. Settling down, he waves away the menu proffered to him and says he’s fine with anything, as long as it’s vegetarian.
We order some minestrone soup and a large platter of kebabs and, while we wait for our food, we ask him about the career he’s left behind.
“You’ve burnt your bridges with Andhra and the IAS?” we ask him. Beams. “Yes, I have quit, I could have remained in the IAS, but it sends a wrong signal that I may want to go back; for that reason I said no. So, I’ve closed all options, it’s either here or nowhere!”
Was it a tough call to make, quitting the premier service? “Well, I mulled over it for a long time, then finally went for it… my wife still can’t accept it!” he says, laughing.
Rao’s bureaucrat career in Andhra Pradesh saw him serve across the State till he wound up as Chairman of Singareni Colleries, where he earned his spurs as an able manager, upping production by 42 per cent in a span of five years.
Earlier, he was on deputation to the UNDP, where he was posted inRomefor a while and then inKuala LumpurandBangkokand evenYangonfor a couple of years. “I was never keen on a Central government job, I was happy in Andhra,” says Rao, a bit wistful.
Over soup and kebabs, we mine him for information on all things coal. Given CoalIndia’s dismal record in producing coal, we ask him if privatisation is an option to step up output.
After all, we tell him, only 40 million tonnes of incremental production has resulted in the Eleventh Plan period — enough to fuel 8,000-10,000 MW of power only as against the capacity addition of 20,000 MW added during 2009-11.
He smiles again, beatifically. We wonder if it’s a futile question, but he explains: “In 2006, 80-odd captive blocks were allotted but not a speck of coal was produced, except some 3-4 million tonnes by two-three state utilities.
There are many reasons: some of the blocks may have gone to non-serious promoters or they may not have invested. Some serious investors are facing problems, including unavailability of an evacuation facility.”
We tell him that power producers are crying themselves hoarse about availability of coal and ask if CIL improving output will solve the problem, given that the Railways never has enough rakes to move the coal.
“Yes,” he says emphatically, “I am working on it (rake availability). Surely, things are better — a shade better than last year. Otherwise, I have no business to hang around; I should leave Kolkata and do some agriculture, if I do not have results to show after one year!” says Rao.
While in the first two months of this fiscal, CIL posted production growth, Rao says it’s too early to say if CIL is on target. “I only wish that the trend continues. Today we have a six per cent growth. But till September, I cannot say if we are doing better than last year. Wait for four more months,” is his exhortation.
The main course comes, a simple meal of roti and dal to keep it quick, and there’s a brief lull in the conversation as everybody helps themselves.
We ask him the burning question: if it’s just a problem with rake availability, why can’t the problem be fixed with the Railways? After all, coal alone contributes 400 million tonnes of the 750 mt of railway freight in a year.
“Railways is also a monopoly like me. Their policy is ‘you pay I will collect’. (laughs); they will not give any concession on railway freight to coal and iron ore (two of the biggest revenue churners).”
But, we point out, CIL, amongIndia’s wealthiest companies, is sitting on cash reserves of Rs 55,000 crore. Why can’t it just fund the laying of railway tracks, if funding is an issue with the Railways?
Rao says that just three railway tracks can solve the nation’s coal problem! “We just need three tracks of 100 km each in Odisha, Jharkhand and Chhattisgarh to solve coal availability issues for the country. Funding is not a problem. This will give an additional Rs 10,000 crore freight revenue for the Railways and Rs 2,000 crore more for each of the three States as royalty.
Some of these projects are pending since the Ninth Plan! Till it happens I am aiming at some low-hanging fruits (to up coal availability).”
Will imports be the solution then for now?
Rao puts that in perspective, pointing out that CIL’s average sale price is Rs 1,200 a tonne.
Aggregating duties, the sale price at the pit head is approximately Rs 1,500 a tonne. So, there is a clear advantage of Rs 2 per kilo-watt hour (or unit) if producers use domestic coal (for power generation).
“Problem with the power sector is distribution companies cannot pass on the cost of imported coal. Today they may be paying Rs 6,000 a tonne for coal. Five-six years later they will not have enough money to buy even my Rs 1,500 a tonne of coal,” elaborates Rao.
What lessons does he draw from his stint at managing Singareni? Rao says that Singareni is fairly well managed and he identified and focused on real issues constraining production.
“I wouldn’t say that those were revolutionary initiatives. All you need is to focus on it and then you may have to take some risk to make it happen.”
Our time with CIL’s Chairman is coming to an end. As we tuck into some mishti doi, we ask him if he’s been put in a hot seat given the burning issues that confront the coal sector.
“I came here knowing all the issues. I know the challenges. I am going ahead with a very ambitious plan. I might face a huge amount of disappointment and frustration. I am prepared for that.”
COST ESCALATION DRIVES AUSTRALIA COAL MINERS TO LOWER OUTPUT
MELBOURNE/PERTH: Falling coal prices and soaring costs have forced Australia’s producers to start trimming output and letting go of some workers, hurting miners, rail and port operators and potentially threatening plans for more than $30 billion of investment in new mines.
Miners operating inAustralia, led by BHP Billiton, Rio Tinto and Xstrata, have long been envied for their proximity toChina, the biggest consumer of coal, but that advantage has been whittled away this year.
Coal producers have been hit by a triple whammy of rising wage, equipment and fuel bills plus new taxes, growing coal exports from the US, and softer demand in China for thermal coal in power plants and coking coal in steel mills.
Thermal coal prices have fallen 20% this year to a near two-year low of $92 a metric ton (1.1 ton) at the AustralianportofNewcastle, based on globalCOAL’s index, which has left prices close to the operating cost for some mines.
“There’s been such demand for gear over the last few years and mining guys get paid $140,000 to drive a dump truck. It’s a joke…It’s all going to come home to roost now,” said a marketing executive with a producer.
New coal mines are particularly vulnerable due to the competition from other sources and soaring costs. In contrast, miners are still expected to pour funds into expanding iron ore operations inAustralia, where they still make fat profit margins even with iron ore prices down from last year’s highs.
Analysts say the coal projects most likely to be shelved are those inQueensland’s untappedGalileeBasin, whereIndia’s GVK and rival Adani Enterprises are among the biggest players, while a Rio Tinto project inNew South Walesis also seen as likely to be delayed.
Australia’s producers are not the only ones suffering, with miners inIndonesiaalso feeling the pinch from drop in prices. But operators inAustraliaface the extra challenge of soaring labor costs plus carbon and mining taxes taking effect in July.
“There are some mines where the price is reaching their marginal cost of production, so obviously at a $92 price, there are going to be a few more,” said Tom Sartor, an analyst with RBS inBrisbane.
Evidence of falling sales is emerging in export statistics from the key coal ports ofDalrympleBayinQueensland, which largely exports coking coal, andNewcastleinNew South Wales, mainly a thermal coal hub.
AtDalrympleBay, exports are on course to fall 9% to a total of 50 million metric tons for the year to June 2012, despite the fact that the previous year’s comparison export numbers were depressed by serious flooding in December 2010 and January 2011.
Port operations manager Greg Smith said the decline was due to a drop in demand for coking coal from steel makers in Asia and competition from US exports of pulverized coal injection (PCI) coal and lower quality metallurgical coal. “At this stage, steel production has been affected by poor economic conditions for most of the nations importing metcoal from DBCT,” Smith said.
“However, those economies will rebound, with just the timing being the unknown at this stage.” Coal exports from theUShave jumped asUSpower stations have been switching from burning coal to natural gas, thanks to a shale gas supply boom that has sent gas prices to 10-year lows.
Exports from theUSare viable as freight rates have dropped sharply this year. “So our geographic advantage compared toNorth Americais no longer so strong, when you have trans-Pacific freights that are so low,” said Andrew Harrington, an analyst at Patersons Securities.
Facing competition from US PCI exports, Anglo American recently cut 14 out of 250 workers at its Foxleigh mine in Queensland, where it is producing about 2.5 million metric tons a year of PCI coal, well below the mine’s 3.3 million tonnes a year capacity. That followed BHP’s decision to close itsNorwichParkcoking coal mine also inQueensland, citing low output, high costs and soft coal prices.
Producers have been cutting coking coal output even as output from BHP’sQueenslandcoal mines, shipped out of a terminal next to Dalrymple Bay Coal Terminal, has been disrupted by a long-running fight with the mining union.
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