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Clock turns back: A big blow for private coal mine developers

By Jyoti Mukul
September 25, 2014 09:01 IST
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The Supreme Court order has created a new legal framework for coal mining by ruling that only the Union government and its entities can do it.

Through this, it has not only buried the National Democratic Alliance government's plan to allow commercial mining of coal, it has dealt a death blow to private developers by ushering in a new era of nationalisation of coal assets.

Along with annulling the mining rights of captive coal miners, the court has de-allocated mines given out to state government entities on the grounds that only the Centre and its entities can mine coal under the Coal Mining Nationalisation (CMN) Act. 

The legal framework for coal mining flows from the CMN Act and the Mines and Minerals (Development and Regulation) Act, 1957, which governs the mining sector in general.

While the CMN Act was enacted when the Union government took over mining operations from the private sector in the 1970s, the MMDR Act vests the authority of giving out mining rights with state governments.

"The current situation has arisen because of the conflicting provisions in the two laws," said an expert involved with changes in the mining laws.

The Centre has allotted coal blocks to 29 state government undertakings through the screening committee route and another 72 blocks to public sector undertakings under the government dispensation route. 

In the latter route, only state or central government entities were given mines. The state governments, however, appointed MDOs for commercially mining coal in some cases. 

"The allocation of coal blocks through the government dispensation route, however laudable the object may be, also is illegal since it is impermissible as per the scheme of the CMN Act. No state government or public sector undertakings of the state governments are eligible for mining coal for commercial use," the court said in its order today. 

Companies like Monnet Ispat, Reliance Power and Adani Enterprises, which had drawn up plans to operate as MDOs, have been hit hard.

In April 2013, Adani Enterprises announced the launch of its integrated MDO operations with the start of coal production from the Parsa East-Kente Basan mine in Chhattisgarh. The coal mine has reserves in excess of 450 million tonnes. But the allocation now stands cancelled.

Adani Enterprises was to produce 15 million tonnes of coal annually at the block in Chhattisgarh from 2017.

The coal was to be supplied to the Rajasthan State Electricity Board's power plants. According to the company's website, Adani Enterprises has access to coal reserves of over 3 billion tonnes from four MDO contracts, including this project. 

The Chhattisgarh contract was the first among the four MDO contracts bagged by Adani Enterprises. The company has outlined a phased capital outlay of Rs 3,000 crore for the entire block. 

According to S Vijay Kumar, former secretary, ministry of mines, the legislative framework for development and regulation of mineral wealth would need an overhaul. 

"It is a clear indication that sectoral legislation needs to be comprehensively changed, not merely for disposal of natural resources but also for determining the methodology for exploration, resource extraction, valuation and regulatory framework," he said. 

The court observed state PSUs, besides having been allocated coal mines for commercial purposes, had also been allowed to form joint venture companies with 49 per cent private shareholding. "However, in the joint venture agreements between the state PSUs and the private companies, mining operations have been given to the private companies." 

Chhattisgarh Mineral Development Corporation, for instance, was allocated the Sondiha, Bhatgaon-II and Bhatgaon-II (Extension) coal blocks. It formed a joint venture with select bidders who will explore, develop and operate the mines and sell the coal in the open market. 

Similarly, the joint venture agreement between Madhya Pradesh State Mining Corporation Limited and Monnet Ispat and Energy Limited reveals the venture was further allowed to enter into MDO agreements with other private partners and sister concerns. 

"This modus operandi has virtually defeated the legislative policy in the CMN Act and winning and mining of coal mines has resultantly gone in the hands of private companies for commercial use," said the court's preliminary order of August 25.

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Jyoti Mukul in New Delhi
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