India takes its coal mines back

India’s Prime Minister Manmohan Singh said Monday the government has already initiated the process of cancelling mines for companies that failed to develop them.

Addressing India’s Parliament, Singh disputed a report released earlier this month by the country’s Comptroller and Auditor General (CAG). The organization estimated that, between 2004 and 2011, the country lost as much as $34 billion by allocating coal mining licenses through private negotiations rather than auctioning them.

The Minister picked holes in the CAG’s math, noting that the CAG had computed financial gains as “being the difference between the average sale price and the production cost of Coal India Ltd (CIL) of the estimated extractable reserves of the allocated coal blocks.”

But critics say that, if the CAG got the numbers wrong is because it has given Singh “a far smaller estimate of unwarranted gains than is warranted,” First Post’s columnist R. Jagannathan writes:

It’s not as if the CAG had no benchmark against which to estimate losses. If anything, the established benchmark shows that the CAG may have grossly underestimated the losses.

In 1973, Indira Gandhi’s government nationalized coal mines containing both coking and non-coking coals. Three years later, two exceptions were made, as V Subramanyan explains in today’s column at DNA:

1) Captive mining by private companies engaged in the production of iron and steel and 2) sub-lease of coal mining to private parties in isolated pockets not amenable to economic development and not requiring rail transport.

From the time India started producing coal commercially, coal mining in the country has been dictated by the needs of the domestic consumption. India’s has abundant domestic reserves of coal. Most of these are in the states of Bihar, Jharkhand, Orissa, Madhya Pradesh, Chhattisgarh and West Bengal.

The coal sector opened up for business in 1993 to the point that, by 1996, coal mining even by cement firms was allowed. A total of 155 coal blocks were reportedly allotted to nearly 100 public and private companies.