In 2015, the Narendra Modi government auctioned two coal blocks in Chhattisgarh. Gare Palma IV/1 fetched a bid of Rs 1,585 per tonne while Gare Palma IV/7 was auctioned for Rs 2,619. The , the government claimed amid allegations of cartelisation, and cancelled it. In case of the other, it shelved the contract after declaring that the successful bidder had violated its conditions.
It auctioned the mines again in November 2020. This time, the first block, with 159.4 million tonnes of coal, was sold to Jindal Steel and Power Ltd for Rs 342.25 per tonne, a quarter less than the rate the government claimed was too low five years earlier. The second block went for nearly 60 percent less than in 2015.
Chhattisgarh, as a result, will lose over Rs 900 crore per year and potentially Rs 24,065 crore in total over a period equal to the life of the two mines – 19 to 50 years – than it would have if the 2015 bids were accepted, calculations based on government projections and records accessed partly under the RTI Act show.
In all, the government auctioned 19 mines in the middle of the pandemic last year and cost several states thousands of crores in potential revenue.
Why would the Modi government decline to sell the mines for “low prices” only to turn around and sell them for far cheaper?
The 19 coal blocks were auctioned under a new bidding method the government devised when it allowed private and foreign companies in any sector to dig mines and sell coal. Billionaire Gautam Adani’s group and its subsidiaries bid for 12 of these mines, winning two.
the timing of the auction. Jharkhand, which has over 26 percent of India’s coal reserves, the entire exercise “farcical”.
This is how lucky the private companies got: Chhattisgarh’s Gare Palma IV/1 block had fetched the highest bid of Rs 1,585 a tonne from Vedanta’s Balco in the 2015 auction. In 2020, the block with 159.4 million tonnes of coal was sold to Jindal Steel and Power Ltd for Rs 342.25 a tonne, based on its final offer of 25 percent share of the revenue.
Chhattisgarh will get at least Rs 14,174 crore less in revenue over the life of the mine than it would have if the Balco’s bid were accepted.
Gare Palma IV/7, which holds 239.04 million tonnes of coal, was auctioned in 2015 for Rs 2,619 a tonne to Monnet Ispat. But the government cancelled the contract in 2018 on the grounds that Monnet had “failed to develop the mines as per the timelines” laid down in the agreement. Five years later, it accepted a 60 percent lower rate, costing Chhattisgarh an estimated Rs Rs 9,891 crore in revenue from the mine.
It’s difficult to estimate the true commercial value of all the coal blocks on offer in 2020. In the case of the two Chhattisgarh mines though, the 2015 auction bids made doing the maths possible.
The 2020 auction drew criticism for letting miners get cheap deals at the expense of the states. They got help in two ways. First, the Modi government set the floor price too low through a complex formula and held the auction at a time when the power sector – which consumes nearly 85 percent of the coal produced annually – was ailing and losing appetite for the fuel.
Second, the nationwide lockdown during the first Covid wave had sent the economy into a tailspin which it’s yet to emerge from.
Worryingly for states, the government is going with the same formula to calculate the floor price and revenue share for the ongoing second round of auctions of 67 coal blocks.
In a February 28, 2019 meeting at the Coal India office whose minutes we accessed under the RTI Act, a former secretary to the government and a senior Niti Aayog official declared that going forward commercial mining was the “ultimate aim”.
That the power sector is still in bad shape only adds to the woes of the state governments.
The claim to coal reforms
In 2014, the Supreme Court of India cancelled the allotment of 214 coal blocks to private companies after finding the process arbitrary and illegal.
The Modi government, which had ridden an anti-corruption wave to power a few months earlier, amended the rules to legalise the allocations once held illegal by the apex court and brought in a new law providing legal cover to its discretionary policies.
After auctioning some mines between 2015 and 2019 under the new rules, the government touted that the states would earn more than Rs 3.35 lakh crore from these auctions and allocations. However, by mid-2018, reports , the states had earned merely Rs 5,684 crore.
In 2018, Coal India, a public sector company, published a study, , assessing future demand in the coal sector. It projected that India could meet its coal needs from existing mines: “No new coal mines need to be allocated/auctioned beyond the current pipeline. In view of the likely demand (base case scenario), there’s limited requirement of starting new coal mines except the ones already auctioned/allocated.”
Yet, on June 18, 2020, amid the pandemic, Modi that India’s coal sector was being freed “from decades of lockdown”, a play of words on the phasing out of the stringent nationwide lockdown.
For the first time since the coal sector was nationalised in the 1970s, private players would get to mine and sell coal in open markets at the price they wished. This would do away with Coal India’s monopoly, and open the sector to domestic and foreign private players.
The union coal ministry then announced the auction of 38 mines, including the two in Chhattisgarh, but only 19 went on the block eventually.
It was predictable that the 2020 auction would fare worse than the 2015 round.
“The 2015 auctions were held against the uncertainty arising from the Supreme Court’s cancellation of 214 blocks. Players in the power sector and others were worried and tried to grab the resource at any cost,” explained a retired bureaucrat who was a top official in the power sector during that period.
So, he said, some of them overbid.
By 2020, when Modi decided to open up the coal sector and kick off another round of auctions, the situation had changed vastly. The power sector, the largest consumer of coal in India, was in a crisis. Power distribution companies, called discoms, were in the red. The Modi government’s Uday scheme, launched in 2015 to wipe off the debt of discoms and put them on a fiscal recovery path, had failed miserably. Discoms hadn’t been able to either raise tariffs or reduce technical and commercial losses as Uday envisaged. Instead, losses mounted as the government spread the electricity network. The aggregate debt of discoms had risen from Rs 1.9 lakh crore in 2015-16 to an estimated Rs 4.5 lakh crore in 2020-21.
“By 2020, discoms owed a huge amount of money to power generation companies,” the retired bureaucrat noted. “As a result, the power generation companies were strapped for cash. Their demand for coal was, therefore, impacted by the poor performance of the power sector.”
Auctioning mines at such a moment would naturally draw lower bids.
To make matters worse, the nationwide lockdown crashed the economy and created uncertainty about economic recovery. Imported coal competed better with coal from India and the miners had to pay an additional levy to the district mineral foundations.
The retired official said a government cannot truthfully claim to maximise revenue from coal sales if it controls electricity prices.
“The government sees coal in the context of the power sector. All its decisions are determined by requirements of the power sector. This is because the pricing of power is very sensitive,” he said, meaning politically sensitive.
He was pointing out the contradiction in claiming that coal was being auctioned to make maximise revenue when its biggest consumer was not allowed to raise the price of their product, that is electricity.
A floor so low
For the 2020 coal block sales touted as a major reform by Modi, auction rules were revamped. The bidder offering the highest share of revenue from the coal they dig up and sell won. Four percent of the revenue was set as the base for bidding.
The government devised two ways to calculate a company’s monthly revenue. One was to calculate how much it actually earned in a month. The second was to determine the notional market price of the coal for a specific period and multiply that with the total coal sold in the period.
The higher of the two numbers would be used to decide the state government’s takeaway based on the share of revenue promised in the bid.
To understand how much a state would actually earn in a year from coal auctions, we ran calculations using the government’s formula to arrive at the floor prices in rupees per tonne and compare them with the 2015 benchmark year. As previously , the floor value was over 50 percent lower than the 2015 benchmark of Rs 150 per tonne.
Notional price is arrived at after adjusting the average market price of coal with the National Coal Index, which was created in the run-up to the auctions to capture the true market value of the commodity.
The representative price and the notional price vary according to grade, a jargon for the quality of coal. For the first round of auctions, we considered the representative prices from March 2020. Based on these values, the floor price for these grades, at 4 percent of revenue share, would be as shown below.
Gare Palma IV/1 with a G12 grade was auctioned off with a floor price of Rs 54.76 per tonne while the IV/7 block with an average grade of G11 had a threshold value of Rs 58.96 per tonne.
In 2015, both these blocks had a uniform floor price of Rs 150 a tonne.
Enter commercial coal mining
Jindal Steel and Power Ltd won Gare Palma IV/1 by committing to share 25 percent of its revenue with Chhattisgarh. Based on this, documents show, the union government calculated that Chhattisgarh would get a revenue share of Rs 205 crore every year. With 114 million tonnes of mineable coal in the block, the state government would make Rs 3,895 crore in total from the mine.
If the union government had stuck to the 2015 revenue figure of Rs 1,585 a tonne, the state would have earned Rs 951 crore a year, or Rs 18,069 crore over the mine’s lifetime. The difference in income to the state is a staggering Rs 14,174 crore.
For Gare Palma IV/7, the government estimated a revenue of Rs 118 crore per year. The block has mineable reserves of 60.47 million tonnes, which means Chhattisgarh will earn Rs 5,946 crore.
Going by the 2015 rate of Rs 2,619 per tonne, the state would have earned 314.28 crore per year, or Rs 15,837 crore over its life. The difference is Rs 9,891 crore.
That’s a total estimated loss of Rs 24,065 crore.
On February 8, 2021, Congress MP Vivek Tankha asked in the Rajya Sabha if the income for Chhattisgarh from the twin Gare Palma blocks in 2020 would be less than that in 2015 based on auction rates. If so, he asked the coal minister to estimate the annual loss to the state government.
“Comparison cannot be made in the premium income as there are different bidding parameters,” coal minister Pralhad Joshi replied. “In the auction in 2015, bidding methodology was on the basis of rupees per tonne auction for captive consumption. For the auction in 2020, it was percentage revenue for sale of coal and there was no restriction on utilisation of coal.”
We accessed the internal projections based on which Joshi had said on November 10, 2020 that the states would earn over Rs 7,000 crore from the coal auctions. According to this sheet, the Chhattisgarh government alone would earn Rs 323 crore a year as its revenue share from the two blocks.
Gare Palma IV/1, with a final offer of 25 percent revenue from Jindal Steel and Power, would account for Rs 205 crore a year, while Gare Palma IV/7 would fetch Rs 118 crore from Sarda Energy’s 66.75 percent bid.
We compared this with the 2015 offers. The IV/1 block, with a bid of Rs 1,585 per tonne, would have added Rs 951 crore per year to the state government’s coffers. This works out to a loss of Rs 726 crore a year.
For the IV/7 block, Monnet’s 2015 bid of Rs 2,619 per tonne would have meant an income of Rs 314.28 crore per year to Chhattisgarh. Compared to 2020, this is a loss of Rs 196.28 crore a year.
A total loss of Rs 922.28 crore a year.
To assess the loss to Chhattisgarh over time, we calculated and compared these figures with the of coal. Even with an optimistic 10-point increase in the National Coal Index value, the state would still lose over Rs 909 crore a year.
Maximising revenue not a goal
The Modi government’s think tank, NITI Aayog, was against maximising revenue from coal sales, going by its comments on the coal ministry’s discussion paper on commercial coal mining, accessed through RTI.
The Aayog highlighted significant deviations in the ministry’s plans from the recommendations that a committee led by its vice chairman had made for reforming the coal sector. The think tank wanted to do away with the 4 percent floor price because it might make some blocks uneconomical.
The Aayog also wanted the coal ministry to ditch the current two-stage bidding process in favour of a single-stage process. Currently, the bidding company is screened for its technical capabilities before its bid is considered. A single-stage process will do away with the technical evaluation, making room for new entrants. The ministry has since suggested it will move in this direction depending on the response to the ongoing auctions.
We sent detailed questions about the auctions to top officials in the coal ministry, but haven’t received a response yet.
Shreegireesh Jalihal and Tapasya are members of , a collaborative journalism effort that publishes in multiple languages and media.
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