India may consider new laws for allocating coal mines to private companies after the nation’s auditor said giving the mines away had lost the government $33 billion, said two people familiar with the matter.
The new framework, being prepared by Crisil Ltd. (CRISIL), the local unit of Standard & Poor’s, may include a lock-in period to delay companies selling their stakes after being granted the blocks, terms preventing the sale of excess output on the open market and a method to set the reserve price for mine auctions, said the people, who asked not to be identified as they’re not authorized to speak to the media. Crisil spokeswoman Tanuja Abhinandan declined to comment.
India’s Central Bureau of Investigation is probing five companies, including a unit of Essar Energy Plc (ESSR), over the allocations. Delays to the introduction of an auction system have disrupted parliament, with the opposition demanding the resignation of Prime Minister Manmohan Singh, who headed the coal ministry when some of the mines were allotted.
“It’s important to take a combination of upfront payments and production-linked payment from companies so that they don’t sit on the mines and government doesn’t lose out if actual reserves turn out to be higher than estimates,” said Debasish Mishra, a partner in the energy and resources team at Deloitte Touche Tohmatsu India Pvt.
The coal ministry began giving mines to companies for their own use in 1993 to boost production. It has allotted 194 blocks with 44.4 billion metric tons of reserves since then, while canceling permits for 22 blocks for slow or no progress.
The CBI is investigating Navbharat Power Pvt., which Essar Power Ltd. bought in April 2011, three years after Navbharat was given a coal block by the government. Essar on Sept. 5 denied news reports alleging Navbharat was a shell vehicle for the company to apply for a government allotment.
The CBI is also investigating JLD Yavatmal Energy Ltd. The company’s plan to set up a power plant and a steel mill failed because of the long distance between the project and the allotted coal mine, Devendra Darda, managing director of the Lokmat Group, which founded JLD Yavatmal, said by phone on Sept. 7.
“We haven’t made any profit from coal blocks,” said Devendra, whose father Vijay Darda is a lawmaker belonging to the ruling Congress Party.
The founder of a third company under investigation, Vini Iron & Steel, said the CBI had raided his premises without realizing that Vini was under new ownership when the government allocated a coal block to the company.
“I sold Vini Iron six months before getting a coal block as I couldn’t develop the steel mill,” said Vaibhav Tulsyan in a phone interview. “I’d made a considerable investment and was desperately looking for a buyer.”
Separately, the coal ministry sought an explanation from Shree Virangana Steels Ltd., which was given three coal mines in 2005, and later changed hands and its name to Topworth Urja Metals, according to the ministry’s website.
“The allotment of coal blocks is for captive purpose and is not for profiteering,” the ministry said in its letter to Topworth. “The sale of shareholding for profit defeats the purpose of such allocation.” Topworth Chairman Abhay Lodha could not be immediately reached for a comment.
A panel of officials from seven ministries started questioning on Sept. 6 licensees for 58 blocks where mining has yet to start as many as 13 years after the permits were issued, the coal ministry said on Sept. 3. Companies being probed include Jindal Steel & Power Ltd. (JSP), Usha Martin Ltd. (USM) and ArcelorMittal (MT:US), the ministry said.
Delays in government approvals and land acquisition have slowed mine development, Sushil Maroo, chief financial officer at Jindal Steel, said on Sept. 3.
The panel has been asked to submit their recommendations by Sept. 15, coal minister Sriprakash Jaiswal, who will take the final decision, told reporters on Sept. 5 in New Delhi. The blocks that lose permits may be given to state-run Coal India Ltd., which can hire a mine developer for extraction, said the people who asked not to be identified.
The profiteering allegations have delayed the allocation of 54 new coal blocks to power, steel and cement companies. The blocks have estimated reserves of 19 billion tons.
“We are being extremely cautious,” Jaiswal told reporters on Aug. 22, after the Comptroller & Auditor General’s report on the lost $33 billion. “We want to ensure there’s no legal loophole.”
The ministry may start the new allocations with 12 blocks that have already been assessed, the people said.
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