People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 37

September 16, 2012


Perils of Coal Privatisation


Smita Gupta


THE report by CAG on allocation of coal blocks has brought into focus the policies for natural resource use, especially under an economic regime that privileges privatisation over social justice and environmental sustainability. Unfortunately, however, the entire debate on coal allocation has been reduced to the completely wrong argument that competitive bidding at the highest price is efficient and transparent, and allocations based on other non-profit criteria such as purpose, equity, and sustainability are corrupt. This has led some activists such as those in India Against Corruption to see all opposition to auction as a support for corruption, thereby making them fall prey to the logic of the market in natural resource allocation. This suits both the Congress and the BJP who are united on the privatisation of coal.




 In the cacophony created by the Congress and the BJP, what is forgotten is their common cause over freeing coal for the private sector. Take for instance the BJP-sponsored Coal Mines (Nationalisation) Amendment Bill, 2000, whose main aim is to open up coal mining to any purpose or agency. The PIB Press Release dated May 14, 2012 announces that “The central government decided to amend the Coal Mines (Nationalisation) Act, 1973 to allow Indian companies, both in the public and private sectors to mine coal in the country without the existing restriction of captive mining” and UPA 2 fully endorses the BJP’s 2000 Bill. Interestingly, it makes clear that this will happen despite the fact that “all the major central trade unions raised their opposition to the Bill” and “in 2004, it was again decided that the Bill will not be moved in the parliament without arriving at a consensus with the trade unions”. The GoM under the chairmanship of the finance minister constituted in August 2009 has clearly decided to overrule the trade unions.


In fact, coal minister Sri Prakash Jaiswal has recently said that "We are ready to take up the Bill and open up the coal sector to increase production. This is the only way forward and there is a consensus within the government on this. Once BJP comes on board, the trade unions will fall in line," pointing once again to this collusion on policy. In fact, according to an August 2012 press release of the ministry of coal, Jaiswal “convinced the foreign investors that besides other infrastructure development sectors, coal sector in India holds tremendous promising avenues for the investors in safe environment.”




How sound is the strategy to privatise and allow foreign investment in a non-renewable natural resource like coal? Besides over-extraction, other environmental problems arise such as the destruction of vast tracts of fertile land. Most coal blocks are located in adivasi and forested areas with a fragile ecology, and prospecting and extraction of coal for profit undermines both equity and sustainability. After nationalisation in 1973, a few exceptions were made for private coal mining, through the captive mining route. This type of approved end use based privatisation started with the allocation of captive mines to iron and steel production in 1976, to power generation and cement in 1993 and coal gasification and liquefaction in 2007.


The government has recently attempted to reduce the share of CIL through backdoor privatisation. Since 2006, the definition of “captive” has been diluted to enable private mining companies to apply for a mining lease directly, mine the coal and sell it to approved end users through ‘fuel supply agreements’. In his budget speech in 2006, finance minister P Chidambaram announced that the “ definition of captive consumption will also be amended to allow coal mining by producers with firm supply contracts with steel, cement and power companies.” This resulted in the re-writing of the general conditions of allocation as follows: “The allocation is made to meet the coal requirement of the permitted end use project. The block may be allotted to an End User Company, JV or a Mining Company which has firm back-to back tie up with specified End User Company (ies)”. 


The main argument in favour of privatisation is that CIL and affiliates are unable to keep up with the growing demand for coal due to inadequate technology and capacity so the private sector will boost production. Experience, however, shows that the captive mining process has not taken off. Almost 90 mines have been allotted to private companies in the past ten years. Of these, a mere 10 per cent have started production of coal. The government has only now woken up to this and issued show cause notices to 58 companies. There are several reasons for this abysmal performance and all point to the irreplaceable role of public investment and the public sector in coal mining.


The new blocks are usually unexplored and lie in areas that are infrastructurally underdeveloped and remote, located in difficult terrain and geology. Thus, the development of infrastructure and prospective exploration is not unprofitable for private companies, and unless there is public investment for infrastructure, the allocated blocks become speculative holdings, simply held to be re-sold or sub-contracted (with windfall gains) later.


Another reason given by the coal ministry to CAG is that the allottees lack the experience to do coal mining, which is itself a strong indictment of the screening process and a clear admission that blocks were handed over to inexperienced companies without an established track record. The allotments were done presuming that coal mining will be liberalised, since “foreign companies were reluctant to come unless they were provided a part of the coal production” which was not possible unless the Act was amended. When this failed, so did production. In recent times, almost 40 mines have been allocated to joint users. The different technical requirements of the end use projects in terms of coal grade, blend, quantity, makes these joint holdings very difficult to co-ordinate. Add to this the statutory clearances and approvals that are required, which of course should be sought. A prospecting license, a forestry clearance, environmental clearances (EC) and compliance with the Forest Rights Act and PESAA are necessary as is land acquisition and full R&R (Resettlement and Rehabilitation). The private companies are neither interested in nor capable of fulfilling all the safeguards that have been won by the people living in these resource rich areas, and so they merely hold the lease and do not operationalise.




Government’s own reports nail the lie that privatisation reduces import dependence. On the contrary, it has done the very opposite, and imports are likely to increase if the current situation continues. Coal imports have gone up steadily from 5 million tonnes in 1990-91 at the beginning of the liberalisation and privatisation period, to 83 million tones in 2011-12 in the Planning Commission’s Mid Term Appraisal, revised upwards in the Annual Plan document of 2011-12 to 137.03 metric tones. The report of the working group on coal & lignite for formulation of Twelfth Five Year Plan (2012-2017) presents two alternative scenarios, the ‘business as usual’ approach and the ‘optimistic’ scenario. The former projects imports in 2016-17 at 265.5 metric tones and the latter at 185 million tonnes making India the biggest global destination for coal. In fact the Planning Commission in an unusually frank condemnation of government policy in the context of captive coal mine allocations stated in the Eleventh Plan’s Mid Term Appraisal that “the government also needs to review the situation, cancel allotment of blocks to non-serious players and re-allot them to consumers who are more credible”.


This was underlined rather gloatingly to its investors by the largest private sector coal company in the world, USA’s Peabody Energy which predicted that India will emerge as the world's biggest importer of coal by 2016 with an annual requirement of 225 million tones and growing. The prognosis is that in five years over 85 per cent of the world’s demand will come from India and China.  Major global players like Peabody Energy are eagerly waiting to make huge profits as India undermines self sufficiency despite huge reserves in a situation where CIL is deliberately weakened as reserves are handed over to inexperienced and speculative private players.


The arguments made here apply to all non-renewable resources, and those clamoring for auction at high prices should note that now it is coal, soon, the current economic regime based on the thoughtless plunder of resources will privatise rivers, forests and other life sustaining resources. Already, riparian rights on several rivers like Mandakini, Narmada, Ganga have been lost to power projects. A decade ago, a stretch of the Mahanadi was sold to a private company. This would make living impossible around these rivers, and a small trip to the picturesque but scarred Mandakini (70 per cent of which has disappeared into tunnels in mountains for private hydel projects) will drive home the devastation caused by this.


Therefore, privatisation is a doomed strategy and the obvious solution is to strengthen CIL and other State owned companies who can sell the coal to the approved end users. The current subversion of parliament is to camouflage the agreement of the BJP and Congress to fully privatise the coal sector. The only consistent opposition has come from trade unions, who have till now succeeded in preventing the legislative reforms that would unshackle coal resources and other fossil fuels. Today, as the government plans to ride roughshod over their protest, it is time for us, to speak out against the irreversible plunder of coal, or our future generations will be right to judge us harshly for this dereliction of our duty. When the State as custodian is failing not only us but future generations, it is time we the people supported our trade unions.