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how to clean up the coal allocation mess

With the Supreme Court announcing that the captive coal block allocations were illegal, India needs to engage with a new set of questions on coal. Right now, our coal industry is a mess. It has spawned oligarchs, hurt local populations and decimated local ecosystems. While doing all this, it simultaneously failed to supply the country with all the coal it needs. This story takes a quick look at some of the larger questions going around — what should be done with the captive blocks? should they be given to coal india? but it is gripped by serious problem. if we liberalise, we need to remember that the country’s past experiences in liberalising energy have not been good.

on coal and ppps

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.

the strange case of hpdcapl

Arunachal Pradesh, the epicentre of hydel power in India, has decided to reverse its contentious decision in 2009 to give 49% equity in its hydro-power corporation to the Naveen Jindal Group. The decision, taken last month, came after a backlash from government departments and other companies having hydel projects in the state against the joint venture, which was a departure from precedent as it effectively gave the Naveen Jindal Group a stake in every upcoming hydel project in Arunachal.

today’s story on the hydel mess in arunachal pradesh focuses on a puzzling deal between the state government and gagan infraenergy, a part of the naveen jindal group.

on arunachal’s egregious hydel plans

between december and now, i worked on a set of stories about the hydel projects coming up in arunachal pradesh. between 2006-09, this state in north-eastern india signed 130 MoUs with about 55 companies allocating them places where they could build dams. several things about these MoUs were surprising. these MoUs translated into 130 dams on 8 river basins — probably the world’s highest concentration of hydel projects.

it was not clear why the state needed to sign so many MoUs in such a short span of time. it was not clear why it had signed projects for more MW-age than what the centre had budgeted for. for its part, while the state government said this rush just showed its urgent desire for development, many of the companies it had tied up with had little or no background in hydel power generation. there were other puzzles. for some reason, the state had turned its back on multi-purpose projects (which can also do flood control) and was only pushing hydel power projects.

stories seeking to uncover the hydel mess in arunachal pradesh began popping out from today. the first one, a lead story which introduces the significance of what has happened in arunachal, compares this to coalgate.

Hydel in Arunachal has four parallels with the controversial coal block allocations of 2006-09. One, Arunachal gave out more hydel projects than it needed to. Two, the state used discretionary powers to allot dam sites, increasing the clout of state politicians, bureaucrats and local brokers to influence allocations. Three, besides sector heavyweights such as Reliance Power, Jindal Power and NHPC, the list of 55 companies featured those in unrelated businesses such as seeds, travel, highways and real estate. Four, construction has barely begun. The state doesn’t have roads or transmission lines. Companies don’t have money and even genuine players are looking to exit.

the main story explores why few of the projects have gotten off the ground. and ends up concluding that something similar to the ill-fated thermal power plant boom i wrote about earlier took place in arunachal. companies rushed in fecklessly. the state signed more projects than it could have supported.

As excited companies began taking a closer look at their new projects, they realised the supporting infrastructure— the primary responsibility of the state and the Centre—to add 40,000 MW in one go was not there. Road connectivity from highways to project sites was either missing or inadequate to support heavy vehicles. Also missing was power, transmission towers and administrative infrastructure like surveying staff and land records…

…Capital is missing too. All these projects are public-private partnerships (PPPs), with Arunachal bringing in equity of 11-26%—or Rs13,000 crore, according to Paliwal. In 2012-13, Arunachal’s entire budget was Rs3,535 crore. “We don’t know how the government plans to raise this money or if they have made any budgetary provisions,” says Kawale.

the motivations of the companies are easily understood. the main story elaborates on those. but what about the state government? why did it sign so many MoUs? 130 MoUs on 8 river basins? the answers, as ever, lies in political funding.

In April 2007, Gegong Apang was ousted and replaced by the then power minister, Dorjee Khandu. The MoU signing accelerated: 101 between February 2006 and March 2009. Brokers and fixers made money by connecting companies with state officials and politicians, who acquired new muscle overnight. Alleges Tapir Gao, state convenor of the BJP: “Unofficial payments made to the Congress ranged between Rs10-15 lakh per MW.” During that signing spree, Arunachal added 39,000 MW. Current and aspiring MPs and MLAs began lobbying for hydel projects to be allowed in their constituencies. Agrees Jarjum Ete, a Congresswoman and a Panchayati Raj activist: “All legislators have benefited from MoU signings in their localities.” At the same time, power has become a prized portfolio. Each of the three CMs after Apang retained the power portfolio.

that is how it is. more stories in the days to come.

In which the Banking Correspondent Auctions finally go below the psychological zero percent margin mark…

for a while now, i have been reporting on the never-ending happiness that is the finance ministry’s “one cluster, one BC” model — essentially, to split india into 20 clusters and then to have one common banking correspondent company for all public sector banks operating in each cluster. this company would then be the only conduit through which welfare programme monies (and cash transfers) would flow from banks to the poor pensioners, nrega workers, what have you.

for a while now, there has been some concern that entrusting such a vital role to one company would sooner or later result in it developing monopolistic tendencies. this concern has been deepening as one saw companies put in incredibly low bids to win clusters — for an industry which has been saying that a 2% margin is not enough, bids have ranged between 0.86% to 0.02 and 0.01%.

but now, there is something new under the sun. a company called seashore has emerged as the L1 bidder for Orissa after bidding minus 0.06%. these guys propose to pay the govt 6 paise for every rs 100 the company delivers unto poor households.

makes sense?

no?

read the story, jointly written by my colleagues nageshwar, atmadip and me.

the man who controls 14 coal blocks

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?

The Mess in Coal. The Rot Runs Deeper

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…