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LATEST NEWS UPDATES | The coal allocation mess

The coal allocation mess

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published Published on Aug 21, 2012   modified Modified on Aug 21, 2012
-Live Mint

The report of the Comptroller and Auditor General (CAG) on the allotment of captive coal mines is a scathing narrative on the mis-governance and mismanagement of the country’s natural resources. As early as 2004, the government realized that the then prevailing system of allotment of mines was not transparent. An internal debate kicked off with the coal secretary pushing for a 28 June 2004 deadline for reforms in the allotment process. But nothing happened in terms of changing the system.

Only a pretence of merit prevailed in the allotment system, which camouflaged political patronage—a “screening” committee consisting officials from the producing and consuming sectors vetted proposals. The results are for everyone to see. Even though the introduction of a bidding system was approved, the government dragged its feet on one pretext or the other. So much so that to this date, a competitive system has not been introduced. The CAG has computed the gains to the private sector allottees, where it has netted off the pubic sector Coal India price from the cost of production. It has argued that the government could have netted a part of this profit of Rs.1.85 trillion, had it resorted to a competitive bidding process. However, it has failed to suggest any strong measures to undo this loss to the government.

The solutions are prospective in nature, suggesting the obvious—a competitive system of allotment. This softening reflects poorly on the audit agency.

The government should re-negotiate with the existing mine licensees in a manner that coal is extracted expeditiously and financial gains are shared.

The CAG report captures the resistance to reform measures in present times. In 2004, the coal secretary had complained about the pulls and pressures in the allotment process. However, the coal minister dismissed his apprehensions and was convinced that the system was good enough to ensure merit.

To expect the political class to uphold the economic interests of the country is rather ambitious. The symptoms are clear—be it the 2G spectrum case or the allotment of mineral resources. In the coal sector, the answer lies in allowing open marketing of coal produced by private miners. A regulator should be set up to ensure efficient mining and avert the cartelization of bids.

Live Mint, 20 August, 2012, http://www.livemint.com/2012/08/19175349/The-coal-allocation-mess.html?atype=tp


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