As litigation amps up after the Supreme Court’s cancellation of all captive coal-block allocations, court documents are throwing light on one of the more puzzling aspects of the coal scam — the 74:26 MDO agreements… These JVs had several striking features. The MDOs held 74% in the JVs — which meant they controlled the mining operations. Two, the price charged by the MDOs was not on cost-plus basis — it was pegged to the prevailing Coal India price. This was odd because the public sector miner has underground and opencast mines, the former being more expensive to operate, and its price is an average of its cost of coal extraction from both kinds of mines. In contrast, the MDO blocks were all surface mines.
What is more, several such JVs were signed well before the blocks were even allotted. Take Karnataka Power Corporation Ltd (KPCL). It signed an MDO contract with Kolkata-based Eastern Minerals & Trading Agency (EMTA) on February 19, 2002. However, blocks were allotted to KPCL on November 10, 2003 — over a year and half later. This created a fresh puzzle. Given the competitive frenzy to get coal blocks, why were the state PSUs so sure they would land one that they signed mining contracts even before the blocks were alloted?
The Economic Survey, last month, said there was an urgent need to fast-track the entry of private sector in coal mining to increase production of this mineral and, by extension, reduce imports. Subsequently, coal and power minister Piyush Goyal stated the government was considering the use of public-private partnerships (PPPs) to achieve this objective. PPPs in coal are not new, but all three models in use have struggled for balance. “In a proper PPP model, you would have a sharp delineation of the roles and responsibilities of both parties,” says Kameswara Rao, leader (power and mining), PwC. “But that doesn’t exist in any of the current contracts.”
events keep overtaking our understanding of the world. my understanding of coal, built around coalgate, is now obsolete. and one of the new areas to now focus on is ppps in coal. incidentally, for more on the three models i discuss in this story, see these stories, on the 51:49 model; on the 74:26/emta model; and the subcontracted mdo model. (Update: After joining Scroll, I looked at another company following the MDO model. See these three reports. One, Two and Three).
heard of a company called emta?
no? i hadn’t either when i started work on the coal stories. and yet, over the last 15 years, it has silently raced up to become one of the largest cos in india’s coal economy. its coal reserves, say industry wallahs, rival those of western coalfields, which is one of the principal subsidaries of coal india.
out today, my story on emta and the complicated factors that explain its rise and rise. take a look?
while writing on coal, it is essential to remember that corruption here is not limited to just the allocation of captive coal blocks. if anything, corruption is rife in this sector which seems to be creating india’s own personal resource curse. this story focuses on one of the other ways in which corruption in coal operates.
Although current rules prohibit private players from acquiring mines to extract and sell coal in the open market, they have been using an innovative arrangement with state mining corporations to do the same.
Under this arrangement, the coal ministry awards a mine to a state mining corporation (SMC). The SMC, in turn, floats a joint venture (JV), in which it holds a majority stake as sweat equity, but makes no investment. A private player holds a minority stake, but brings in the entire investment and handles all operations.
If the contract terms are lopsided or if output is not monitored, such an arrangement lends itself to abuse, as the Karnataka Lokayukta exposed while investigating illegal iron-ore mining in the state…