Why is CAG silent on coal denationalisation?

It is quite surprising that the Comptroller and Auditor General has not advised denationalisation of the coal industry in its report to Parliament. The CAG has recommended auction of coal blocks to ensure that private captive miners do not make undue gains. It wants a committee to be set up comprising representatives of various ministries and vested with the powers to give quick approvals for mine leases, mining plans, forest clearances, and rehabilitation of displaced persons. The coal ministry should reward performers and punish non-performers, it says. But it has failed to address the root cause of coal shortage in the country: which is the public sector hold on the industry.

The coal industry was nationalised in 1973 through an act of parliament. In 1976 the law was amended to allow captive mining by private steel mills. In 1993, there was yet another amendment to permit captive mining by private power producers. In 1996, the privilege was given to private cement producers.

The CAG admits in its report that in the five years to 2010-11, only Coal India increased production, while the others, Eastern Coalfields, Mahanidhi Coalfields and Central Coalfields under-performed. Yet it seems to prefer public sector inefficiency to private sector profiteering. Despite sitting on one of the largest reserves of coal, India imports 70 million tonnes of coal a year, which is a drain on our dollar reserves, and inflationary, because it pushes down the value of the rupee and makes imports expensive.

Producers of power, steel and cement should focus on that they know best. Coal mining is not their forte. This should be left to those who have the expertise. The CAG should have recommended commercial mining by the private sector. Perhaps it feared that if it advised denationalisation, attention would get deflected from the scandal it alleges.

Certainly, there is no reason why coal blocks should not be auctioned to all miners, not just to those in the private sector. One may quibble about the CAG's loss estimate, but all companies which sold their output at market prices made undue gains from the allocation of coal blocks in sweetheart deals. Since 2000, Coal India has been free to peg its rates to market prices. Only ultra mega power projects, which won the projects by quoting the lowest electricity charges have passed on the benefit of cheap coal to consumers. The UPA and NDA governments, and the state governments of West Bengal, Rajasthan and Chhattisgarh which reportedly opposed a 2004 proposal of the Prime Minister's Office to auction coal blocks, are all to blame.

The coal ministry says there was confusion till June 2006, when the law ministry clarified that auction did not need an amendment of the law, but could be done through an executive order. It claims it did not resort to auctions even after that under pressure from state governments and to avoid delays in awarding coal blocks, to mitigate the shortfall. Why did it have to succumb to pressure?

There might be opposition to competitive mining on the grounds that the record of Indian companies in this area is quite pathetic. Mining so far has been neither ecologically sustainable not socially responsible. Even public sector companies have failed to honor their promises of rehabilitation of displaced tribals. This means, a free for all in mining should be avoided. Criteria must be drawn up for mining eligibility. But this is no reason for coal mining to be a public sector preserve.

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