Coal Block Allocations and the 2015 Bill

In September 2014, the Supreme Court cancelled the allocations of 204 coal blocks.  Following the Supreme Court judgement, in October 2014, the government promulgated the Coal Mines (Special Provisions) Ordinance, 2014 for the allocation of the cancelled coal mines.  The Ordinance, which was replaced by the Coal Mines (Special Provisions) Bill, 2014, could not be passed by Parliament in the last winter session, and lapsed. The government then promulgated the Coal Mines (Special Provisions) Second Ordinance, 2014 on December 26, 2014.  The Coal Mines (Special Provisions) Bill, 2015 replaces the second Ordinance and was passed by Lok Sabha on March 4, 2015.

Why is coal considered relevant?

Coal mining in India has primarily been driven by the need for energy domestically.  About 55% of the current commercial energy use is met by coal.  The power sector is the major consumer of coal, using about 80% of domestically produced coal.

As of April 1, 2014, India is estimated to have a cumulative total of 301.56 billion tonnes of coal reserves up to a depth of 1200 meters.  Coal deposits are mainly located in Jharkhand, Odisha, Chhattisgarh, West Bengal, Madhya Pradesh, Andhra Pradesh and Maharashtra.

How is coal regulated?

The Ministry of Coal has the overall responsibility of managing coal reserves in the country.  Coal India Limited, established in 1975, is a public sector undertaking, which looks at the production and marketing of coal in India.  Currently, the sector is regulated by the ministry’s Coal Controller’s Organization.

The Coal Mines (Nationalisation) Act, 1973 (CMN Act) is the primary legislation determining the eligibility for coal mining in India.  The CMN Act allows private Indian companies to mine coal only for captive use.  Captive mining is the coal mined for a specific end-use by the mine owner, but not for open sale in the market.  End-uses currently allowed under the CMN Act include iron and steel production, generation of power, cement production and coal washing.  The central government may notify additional end-uses.

How were coal blocks allocated so far?

Till 1993, there were no specific criteria for the allocation of captive coal blocks.  Captive mining for coal was allowed in 1993 by amendments to the CMN Act.  In 1993, a Screening Committee was set up by the Ministry of Coal to provide recommendations on allocations for captive coal mines.  All allocations to private companies were made through the Screening Committee.  For government companies, allocations for captive mining were made directly by the ministry.  Certain coal blocks were allocated by the Ministry of Power for Ultra Mega Power Projects (UMPP) through tariff based competitive bidding (bidding for coal based on the tariff at which power is sold).  Between 1993 and 2011, 218 coal blocks were allocated to both public and private companies under the CMN Act.

What did the 2014 Supreme Court judgement do?

In August 2012, the Comptroller and Auditor General of India released a report on the coal block allocations. CAG recommended that the allocation process should be made more transparent and objective, and done through competitive bidding.

Following this report, in September 2012, a Public Interest Litigation matter was filed in the Supreme Court against the coal block allocations.  The petition sought to cancel the allotment of the coal blocks in public interest on grounds that it was arbitrary, illegal and unconstitutional.

In September 2014, the Supreme Court declared all allocations of coal blocks, made through the Screening Committee and through Government Dispensation route since 1993, as illegal.  It cancelled the allocation of 204 out of 218 coal blocks.  The allocations were deemed illegal on the grounds that: (i) the allocation procedure followed by the Screening Committee was arbitrary, and (ii) no objective criterion was used to determine the selection of companies.  Further, the allocation procedure was held to be impermissible under the CMN Act.

Among the 218 coal blocks, 40 were under production and six were ready to start production.  Of the 40 blocks under production, 37 were cancelled and of the six ready to produce blocks, five were cancelled.  However, the allocation to Ultra Mega Power Projects, which was done via competitive bidding for lowest tariffs, was not declared illegal.

What does the 2015 Bill seek to do?

Following the cancellation of the coal blocks, concerns were raised about further shortage in the supply of coal, resulting in more power supply disruptions.  The 2015 Bill primarily seeks to allocate the coal mines that were declared illegal by the Supreme Court.  It provides details for the auction process, compensation for the prior allottees, the process for transfer of mines and details of authorities that would conduct the auction.  In December 2014, the ministry notified the Coal Mines (Special Provisions) Rules, 2014.  The Rules provide further guidelines in relation to the eligibility and compensation for prior allottees.

How is the allocation of coal blocks to be carried out through the 2015 Bill?

The Bill creates three categories of mines, Schedule I, II and III.  Schedule I consists of all the 204 mines that were cancelled by the Supreme Court.  Of these mines, Schedule II consists of all the 42 mines that are under production and Schedule III consists of 32 mines that have a specified end-use such as power, iron and steel, cement and coal washing.

Schedule I mines can be allocated by way of either public auction or allocation.  For the public auction route any government, private or joint venture company can bid for the coal blocks.  They can use the coal mined from these blocks for their own consumption, sale or for any other purpose as specified in their mining lease.  The government may also choose to allot Schedule I mines to any government company or any company that was awarded a power plant project through competitive bidding.  In such a case, a government company can use the coal mined for own consumption or sale.  However, the Bill does not provide clarity on the purpose for which private companies can use the coal.

Schedule II and III mines are to be allocated by way of public auction, and the auctions have to be completed by March 31, 2015.  Any government company, private company or a joint venture with a specified end-use is eligible to bid for these mines.

In addition, the Bill also provides details on authorities that would conduct the auction and allotment and the compensation for prior allottees.  Prior allottees are not eligible to participate in the auction process if: (i) they have not paid the additional levy imposed by the Supreme Court; or (ii) if they are convicted of an offence related to coal block allocation and sentenced to imprisonment of more than three years.

What are some of the issues to consider in the 2015 Bill?

One of the major policy shifts the 2015 Bill seeks to achieve is to enable private companies to mine coal in the future, in order to improve the supply of coal in the market.  Currently, the coal sector is regulated by the Coal Controller’s Organization, which is under the Ministry of Coal.  The Bill does not establish an independent regulator to ensure a level playing field for both private and government companies bidding for auction of mines to conduct coal mining operations.   In the past, when other sectors have opened up to the private sector, an independent regulatory body has been established beforehand.  For example, the Telecom Regulatory Authority of India, an independent regulatory body, was established when the telecom sector was opened up for private service providers.  The Bill also does not specify any guidelines on the monitoring of mining activities by the new allottees.

While the Bill provides broad details of the process of auction and allotment, the actual results with regards to money coming in to the states, will depend more on specific details, such as the tender documents and floor price.  It is also to be seen whether the new allotment process ensures equitable distribution of coal blocks among the companies and creates a fair, level-playing field for them.  In the past, the functioning of coal mines has been delayed due to delays in land acquisition and environmental clearances.  This Bill does not address these issues.  The auctioning of coal blocks resulting in improving the supply of coal, and in turn addressing the problem of power shortage in the country, will also depend on the efficient functioning of the mines,  in addition to factors such as transparent allocations.

Lok Sabha clears Land Acquisition Bill

The Lok Sabha on Tuesday cleared the contentious land acquisition Bill, along with nine amendments proposed by the government. Though these amendments convinced some National Democratic Alliance (NDA) partners and parties such as the Biju Janata Dal (BJD) to come on board, these failed to dissuade the Congress and most Opposition parties, which walked out at the time of voting on the Bill.

However, in a reversal for the government, the Opposition in the Rajya Sabha insisted the Mines and Minerals (Development and Regulation) Amendment Bill be referred to a select committee, which is for scrutiny. For the government, in a minority in the Upper House, this is a possible indication of the fate that awaited the land Bill in the Rajya Sabha.

In the morning, Finance Minister Arun Jaitley, Parliamentary Affairs Minister M Venkaiah Naidu and Rural Development Minister Chaudhary Birender Singh briefed NDA MPs on the amendments proposed by the government. Following this, the debate in the Lok Sabha on the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (Amendment) Bill, 2015, was resumed.

The Congress termed the amendments to the Bill “cosmetic changes”. Along with the Congress, other Opposition parties, including the Janata Dal Parivar, the Left parties and the Trinamool Congress, are set to demand the Bill be referred to a select committee in the Upper House.

The amendments included specifying only land up to one km on either side of a railway line or highway can be acquired for industrial corridors. The list of exempted categories omitted social infrastructure. According to the amendments, the Bill will no longer cover land acquisition for private hospitals and schools; and any government will need to ensure the least required land is acquired for a project, carry out a survey of its wasteland and maintain a record on it. According to another amendment, compulsory employment will be provided to at least one member of a family of a ‘farm labourer’. Also, hearings or grievance redressal will be held in the district in which the land acquisition is carried out.

During the debate on the Bill, Chirag Paswan of the Lok Janshakti Party (LJP), an ally of the Bharatiya Janata Party, said following the amendments, his party had decided to support the Bill. The BJD’s Bhartruhari Mahtab withdrew some of his party’s amendments, following the government’s amendments.

Ranjit Singh Brahmpura of the Shiromani Akali Dal, an NDA member, maintained the consent of landowners should be made mandatory for any land acquisition. He said, “Care should be taken that only barren land is acquired, not fertile land. Also, compensation must be provided at market rates.” The Shiromani Akali Dal later came on board in terms of agreeing to the provisions of the Bill.

Other allies such as the Telugu Desam Party and Apna Dal supported the government on the Bill. The Congress, Trinamool Congress and Left parties vociferously opposed it, demanded it be referred to a parliamentary standing committee.

Replying to the debate, Birender Singh said the NDA government wouldn’t do anything that was anti-farmer, adding it would ensure their interests were protected. He said a false notion was being created that the amendments to the Bill would hurt farmers and rob them of their livelihoods. “But the fact is it is through the old land acquisition Act that Opposition parties want the farmers to remain poor and deprived, while we want them to join the development process,” he said.

Nutrient Based Subsidy Scheme for Fertilizers is Being Implemented

The Nutrient Based Subsidy (NBS) Policy is being implemented w.e.f. 1.4.2010 by the Department of Fertilizers and under the said policy, a fixed amount of subsidy decided on annual basis, is provided on each grade of subsidized Phosphatic & Potassic (P&K) fertilizers depending on its Nutrient Content. At present 22 grades of P&K fertilizers are covered under the NBS policy. The benefits accruing to the farmers are as under: i.        The P&K fertilizers are made available to farmers in adequate quantities. ii.      More grades of P&K fertilizers have brought under the purview of the NBS Scheme giving the farmers wider choice to use complex fertilizer grades. To improve fertility of soil and promote sustainable agriculture in the county, the Government is implementing the following schemes/projects: I.          Soil Health Management (SHM) programme under National Mission for Sustainable Agriculture (NMSA) assists State Governments in following components:             i.                    Setting up of static/mobile soil testing laboratories (STLs). ii.                  Strengthening of static/mobile STLs. iii.                Training and demonstrations on balanced use of fertilizers. II.        In current year, Soil Health Card Scheme has been introduced to assist State Governments to issue soil health cards to all farmers in the country. Soil health card will provide information to farmers on nutrient status of their soil along with recommendation on appropriate dosage of nutrients to be applied for improving soil health and its fertility. Soil Health status will be assessed regularly in a cycle of 3 years so that nutrient deficiencies are identified and amendments applied. Under SHM Programme, during the current year, 9 new static Soil Testing Laboratories (STLs), 56 new mobile STLs, strengthening of 2 STLs have been sanctioned to States, apart from 354 training and 420 demonstrations. Under ‘Soil Health Card’ scheme, a sum of Rs. 23.59 crore has been released to States towards soil sampling, training, awareness creation.

Share of Solar Energy

With an installed capacity of about 3000 MW solar power, the share of solar energy is about 2% in the power sector of the country. Ministry of New and Renewable Energy (MNRE) has proposed to scale up Grid Connected Solar Power targets from 20,000 MW to 1,00,000 MW by 2022. The target includes 40,000 MW roof-top solar photovoltaics, 57,000 MW large solar projects and 3,000 MW already installed. This was stated by Sh. Piyush Goyal, Minister of state for Power, Coal & New and Renewable Energy (Independent Charge) in a written reply to a question in the Rajya Sabha today. The Minister further stated that India already has installed capacity of over 34 GW from various renewable energy sources which is 13% of the total installed capacity of power generation in the country. As per Global Status Report, REN 21, India’s global position in renewable energy capacity installation is 5th in the world. The investment in renewable energy are mainly by private sector. The Government has approved an outlay of Rs. 33,003 crore for Ministry of New and Renewable Energy for promotion of new and renewable energy during 12th Plan period. This includes Rs. 19,113 crore as Budgetary Support and Rs. 13,890 crore from Internal and Extra Budgetary Support (IEBR). MNRE has organized First Global Renewable Energy Investors Promotion Meet (RE-INVEST 2015) during February 15-17, 2015 in New Delhi. As part of RE-INVEST 2015 initiative, 387 companies/firms (both private and public sectors) have submitted Green Energy Commitment Certificates (GEC), aggregating to about 270 GW power generation capacity during the next five years.

PM launches first indigenously developed and manufactured vaccine against Rotavirus

The Prime Minister, Shri Narendra Modi, today launched the first indigenously developed and manufactured Rotavirus vaccine: `Rotavac.` The indigenously developed vaccine will boost efforts to combat infant mortality due to diarrhoea.

Each year, diarrhoea caused by rotavirus results up to 10 lakh hospitalizations and kills nearly 80 thousand children under the age of 5 years. Besides causing emotional stress to the affected families, it also pushes many Indian families below the poverty line and also imposes significant economic burden on the country.

The Prime Minister felicitated all the partners in the development of the first indigenous rotavirus vaccine, which involved the complete cycle from basic research to product development of this advanced vaccine in India.

The Prime Minister also lauded this initiative as an example of India`s capabilities for high-end research and development; manufacture of sophisticated pharmaceutical products in India; and, effective Public-Private-Partnership model for finding affordable solutions to societal challenges.

The Prime Minister remarked that India is characterised by large size and diversity; and, continues to face a number of socio-economic challenges. He hoped that the development of the rotavirus vaccine would inspire higher levels of research, development and manufacturing activities in India, not just in medical science, but also in other advanced areas of science and technology. Prime Minister felt that solutions found in India would have great relevance to the rest of the world, especially the developing world.

He also highlighted the vaccine as a successful example of collaboration between India and the United States in the area of medical research, for the benefit of ordinary citizens.

The vaccine has been developed under an innovative public-private partnership model. It involved partnership between the Ministry of Science and Technology, the institutions of the US Government, various government institutions and NGOs in India, supported by the Bill and Melinda Gates Foundation.

Funding by Government of India supported basic research in educational and scientific institutions in India. This was also supplemented by the support of U.S. Government institutions like the National Institute of Health. The Gates Foundation and Bharat Biotech India Limited contributed towards product development and testing. The successful launch of the first indigenously developed and produced vaccine today was the result of an extraordinary effort spread over the last 25 years.

The Bharat Biotech India Limited that was involved in the development and production of the vaccine was selected in 1997-1998 by the India-U.S. Vaccine Action Programme and the standard government procedures. The company has been given undertaken to keep the cost of the vaccine at US$ 1 per dose. This is the third such vaccine available globally against Rotavirus and, at the current prices, the cheapest.

The European Union (EU) has formally adopted climate change targets for December 2015 UNFCCC

The European Union (EU) has formally adopted climate change targets for December 2015 UNFCCC Paris Conference. Adopted climate change target includes a 40 per cent cut in emissions by 2030. These targets were agreed by leaders of the 28 EU member-states at a summit in October 2014 but now have been officially forwarded to the United Nations. EU announcement comes prior to the deadline of March 31, 2015 as it is binding on countries to announce their commitment to cutting greenhouse gas emissions. EU countries when taken together form the world’s biggest economy and accounts for nine per cent of global emissions of greenhouse gases. EU has agreed to cut the greenhouse gas emissions by at least 40 per cent compared to 1990 levels. United States also has formally announced its intention to reduce emissions by 26-28 per cent in 2025 compared with their level in 2005. It should be noted that US accounts for 12 per cent of global greenhouse gases emissions. While, China has set a target date of 2030 for its global greenhouse gases emissions to reach peak.

Risks to the new framework

The formalisation of the new monetary policy framework between the government and the central bank marks the next step in the transition to flexible inflation targeting (FIT) by India. The first step was the acceptance by RBI of the Urjit Patel Committee’s (UPC) recommendations in January 2014: Adopt CPI inflation as the clearly-defined nominal anchor; and a two-year ‘glide path’—8% headline CPI inflation by January 2015 and 6% by January 2016—to prepare the initial conditions ahead of formal adoption of FIT. With this agreement, RBI’s primary goal becomes price stability, while keeping in mind the growth objective; the inflation target in year starting April 2016 and beyond will be 4% (±2%); and  achievement of this target, or otherwise, will determine success or failure of RBI’s actions.

Not surprisingly, this has been hailed as an epic reform in Indian macroeconomic policy. As with most reforms, the macroeconomic context acquires relevance for its eventual success. The transition to FIT happens at a time when both domestic and external environments are adverse and uncertain, notwithstanding the fortuitous steep decline in oil prices that has accelerated disinflation. Growth is below-trend; despite what the new GDP series reflect, other indicators suggest substantial over-capacity, weak industrial production and bank credit growth, and considerable distress at the balance-sheet level that is reflected in high bad-asset levels at banks. Although temporarily repaired, the internal and external imbalances are structurally unaddressed: the current account gap remains dependent upon capital flows; sustained financing from export receipts inadequate; and the deficit could enlarge any time imports rebound. Likewise, fiscal balances are still precarious with a low revenue base and lack of subsidy reforms. Finally, global demand is substantially weakened with an uncertain financial environment.

It is against this backdrop that two transformations occurred from January 2014: One, price stability is now the primary policy goal, implying reduced weights on the growth objective in interest rate setting. Two, CPI is the nominal monetary policy anchor against the producer price inflation (WPI) previously. The interplay between these changes and the macroeconomic context provides a perspective on the associated growth sacrifice possibilities. Surprisingly, there isn’t a discussion on the macroeconomic setting or timing of the transition in the UPC report, although it states that output costs of disinflation were balanced vis-à-vis choosing the glide-path or speed of disinflation.

The growth sacrifice, however, may be considerable as this will arise not just from the deflationary bias due to monetary tightening (75 bps over September 2013-January 2014) but also from a lasting or structural increase in the real cost of capital as interest rate setting shifted to a much-higher CPI inflation. This shift, the size of which equals the producer-consumer price inflation gap, constitutes a permanent cost disadvantage to which producers must adjust in the long-run. And it comes at a critically low point of the economic cycle, when firms are the most vulnerable with limited abilities to withstand an enduring shock of this nature. Given the larger significance of cost of capital for manufacturing, the risk is of an unintended resource-shift away from the sector. For manufacturing firms to recover from cyclical and structural shocks of this nature could take long in an environment of surplus global capacity across countries.

Some effects are manifest in the visible deterioration in many firms’ balance sheets, steady rise in bad loans (10.7% of total advances in September 2014 from 10% in March); the feebleness of industrial growth (an average 2.1% monthly in April-December 2014 growth over a corresponding 0.02% last year); weak demand for overall bank credit (5.4% growth over March 21, 2014, to January 23, 2015, against a matching 9.7% the previous year) with prominently pathetic growth in credit to industry (2.6% over March 21, 2014, to January 23, 2015, compared to 8.9% in March 2013 to January 2014).

If disinflation extracts too high a price in the initial stage of FIT, risks to the next phases of implementation could increase. This particularly applies in the case of fiscal policy, institutional support from which is essential for FIT’s success. Fiscal dominance is often a key inflation driver and can negate monetary policy effort, a potential threat to credibility. Adherence to fiscal rules in India is insufficiently entrenched; there is temptation to pause, bend or extend commitments whenever the business cycle wanes, growth slows and tax revenues decline. To recall recent fiscal history, a pause to the consolidation path under the Fiscal Responsibility and Budget Management Act was announced in 2009-10 to combat the crisis shock while return to course was delayed. A revised path to restore fiscal health by 2016-17 was drawn by the Kelkar panel (2012) with the government on course to achieve it since. But in a similar replay, the 2015-16 deficit target (3.6% of GDP) has been raised to 3.9% to address growth concerns.

Then again, overlooking these aberrations and assuming full institutional support by way of tight fiscal rules/commitment that is needed for successful FIT implementation, the required fiscal path could be demanding. Unless growth picks up substantially to relieve the fiscal burden and relaxes budgetary constraints, there could be temptation to delay or breach fiscal targets; or political support for FIT could weaken.

Then, there are the risks from the supply-side, an important source of consumer price shocks.

The Indian political economy, which must adapt itself for monetary policy support, is essentially non-responsive in the sense that reforms to the market structures to allow free and efficient functioning and pricing to balance demand-supply forces have long been postponed or delayed. If supply-side responses are unforthcoming, in conjunction with low-growth conditions at the time of transition, it implies a prolonged burden upon monetary policy that will be forced to remain tighter than otherwise might be the case. The economy could then be locked in a high-interest-rate regime, breaking out from which could be difficult for fear of undermining credibility. Of course, it could also be the case that inflation targeting could itself compel such supply-side reforms.

For India’s adoption of FIT, the growth outcomes are then quite pivotal in the light of these risks.