Largesse for companies from backdoor sale of captive coal

Pinterest LinkedIn Tumblr


NEW DELHI, October 3:  New evidence shows that the government itself has been allowing private companies to sell coal mined from captive coal blocks although commercial sale of coal is not legally permissible. The Coal Mine Nationalisation Act restricts coal mining to Central PSUs or to companies which have been allocated captive coal mines for a specific end-use like production of steel, power or cement.

The captive coal block policy framed under the Act specifies that even coal rejects and middlings generated during coal washing cannot be sold by any captive coal block owner. However, the Coal Ministry has been found to be in violation of the Act by permitting private companies to sell coal rejects and middlings.

The government admitted in Parliament on May 16, 2012, that “coal rejects and middlings after washing of coal are disposed of as per provisions of Colliery Control Rules, 2004 and Coal Mines (Taking Over Management) Act 1973”.

It is necessary to understand that rejects and middling of medium or higher grade is equivalent to lower-grade coal. Coal is a combustible rock mainly made of carbon categorised in Grades A to G depending on its calorific heat value. The higher the heat value, the higher the grade. Since any coal deposit contains several grades of coal, it is washed to secure the grade that is required. The residual of this process is called rejects and middlings, which is actually coal in every sense.

For example, if a coal mine produces D to F-grade coal, the washing of D-grade coal generates rejects and middlings of F and G-grade. Similarly, if a coal mine is producing C to D-grade coal, washing would generate E and F-grade reject and middlings. Even rejects lower than G-grade have calorific value. A huge market exists for coal rejects and middlings since these are consumed for power generation.

Mass coal sale

By its own admission in Parliament, the Coal Ministry permitted Tata Steel to sell 30.53 Lakh Tonnes (LT) of middlings on July 14 and 16, 2009, and June 8, 2009, 32.54 LT on May 6, 2011 and 32 LT on April 27, 2012, while Jindal Steel & Power Ltd (JSPL) was permitted to sell 2.48 LT coal middlings as renewal of earlier unsold quantity and another 19.05 LT of middlings on July 28, 2009. On April 22, 2010 JSPL was again permitted to sell 7.86 LT. Similar permissions were granted to ICML (an RPG Group company) for 3 LT for 2009-10 and 2011-12, SEML (a Chhattisgarh-based firm) and Electrosteel Castings Ltd (no specified quantity) in 2011-12.

The coal sale permissions granted by the Central government have been taken up in an application filed in the Supreme Court by lawyer Sudiep Shrivastava.

Commercial permit

The government’s open permit for commercial sale of coal can be traced back to the Coal Ministry’s letter dated March 1, 1999 to all captive coal mining companies, State governments, FICCI, CII, ASSOCHAM, Sponge Iron Association, CIL and SCCL.

The letter records the fact that “on account of force majeure events, the linked end-user company may not be able to accept the coal mined from the captive blocks…. The accumulation of such coal also poses fire and safety hazards”.

“In order to overcome such distress conditions the captive coal mining companies will be allowed by the Ministry of Coal under the provisions of the Colliery Control Order 1945 to sell coal to companies engaged in the approved end uses, i.e., power generation or iron and steel production or cement production for quantities which are not required by the linked end-user to which the captive coal block was linked for the exclusive supply of coal from the block”.

This essentially translates into a commercial permit to sell coal since more than half of the coal consumption is in the power sector (uses E to G grade coal), which is the main consumer of the coal reject and middlings generated by the steel and cement sectors (uses A to D-grade coal). It also prompts the question of why the government allocated captive blocks without verifying and ensuring the required quantity and quality of coal which was of paramount importance in the captive coal policy.

The letter further permits “sale of accumulated coal ….to non-power grades of coal (A to D grade coal) that are mined from the captive mines linked to thermal power plants and grades of coal that are mined from captive mines linked to cement plants but cannot be used for cement production. Similar coverage will be available to the non-steel grades of coal coming out from captive mines linked to iron and steel producing plants.”

After the commercial permit, further largesse is then bestowed on the pricing of such surplus coal. “The price at which the captive coal mining company may be allowed to sell coal to any other approved end-user will not be higher than the price at which the captive coal mining company sells coal to the linked end-user”. Since private firms mine these captive coal blocks, this basically means that that there is no check on either the quantity of coal being sold or its price.

In addition, the evidence proves that the “distress” and “force majeure” arguments used to invoke the Colliery Control Rules to permit this sale of coal is untenable since companies couldn’t dispose off mass coal stocks immediately and sought extension of time which was granted even after a year (see chart).

When contacted, Electrosteel Castings confirmed to The Hindu, that the firm washes its high ash coal before use in a 2 mtpa capacity washing plant at the pit head itself. “We are getting around 60% residual products, which is not used for steel making. This can be used for power generation, brick making and other local industries and has a commercial value; we can only dispose it off subject to permission from Ministry of Coal”.

The company further confirmed that residual coal is stored till permission is obtained from the Coal Ministry, which is a hardship owing to the risk of fire, danger of petty theft by local villagers and space crunch if stored for long periods.

JSPL, though silent on many crucial aspects of the questionnaire mailed by The Hindu, also admitted that all coal was washed before use in its steel and power plants and that residual coal called middlings was being used for power generation. “We have set up an FBC-based power plant for use of such residual coal”, the company stated.

The Tata group, which has several coking coal blocks and secured the maximum permissions for sale of coal of over 3 MT/year, did not respond to questions emailed by The Hindu. The Tata’s coal production data reveals a production of 7 MT/year which means that over 40% of the coal that it produces is being sold.

Mining plan approvals excessive

The fact that the Ministry of Coal could be wilfully assisting private players in violating the captive mining policy for their own financial gain, is further demonstrated by the fact that a majority of coal block allocations to private companies have been found to be hugely in excess of their projected requirement of coal per year. This itself is a violation in which organizations like Coal Controller and State Govt Mining Department may well be complicit.

For example, government data shows that JSPL Gare IV/1(123 MT) coal block was allotted a 0.66 MTPA sponge iron plant with the captive power plant to be run on reject and middlings for which the projected requirement of raw coal was roughly 2 MT.

Even if we consider the expanded capacity of JSPL for which they have already secured another coal block Gare IV/6 (156 MT jointly with approx. 120 MT share) in which coal production is yet to commence, the total coal requirement for 1.37 MTPA sponge iron and 358 MW power would be hardly 4 MT of raw coal.

Though the government is fully aware of this, it has gone ahead and sanctioned JSPL a Mining Plan of 6 MTPA coal production capacity from Gare IV/1. It is obvious that the coal sale permission of 1.9 MT granted to the company in the name of rejects and middlings is similar to the coal it produces as surplus.

Policy doublespeak

Acknowledging this, the government’s ‘Guidelines on disposal of coal during development phase’ say: “In order to ensure that such transfer does not turn into trade by a company, a committee under the chairmanship of the Additional Secretary (Coal) has been constituted to determine the price at which coal will be transferred from captive mine to the local Coal India subsidiary”. However, even this rider rings hollow since the CIL rates for both coal linkage and e-auctions are commercial rates.

Minutes of the 22nd meeting of the Screening Committee held on November 4, 2003 also expose the lacunae. “Scheme for disposal of unusable containing carbon obtained during mining of coal or at any stage thereafter including washing… must include the disposal/use to which the middlings, tailings, rejects etc from the washery are proposed to be put. This is intended to avoid the applicant approaching the Government at a later stage for seeking permission to sell such materials”. The minutes go on to emphasize that the “price would be such that it gives only a marginal recovery of the normative costs to the allocatee. The return would be such that it acts as a disincentive for him to delay the setting up of the end-use project and carry on only coal mining”. The minutes further accept that the administered price for disposal of surplus coal is not being followed by stating that middlings generated during beneficiation should not be allowed to be sold by the coal block allocates, who should either set up approved end-use projects with surplus to “be marketed through the local CIL subsidiary to whom the middlings could be transferred at an administratively determined price…”.

This demonstrates that the government has been aware of the modus operandi of private firms but has not acted.

Write A Comment