Outsourcing model may undermine Coal India

An attempt at outsourcing mining via the public-private partnership model appears to have boomeranged on Coal India Ltd (CIL).

Presuming that the private sector can speed up the tedious process of land acquisition, rehabilitation and resettlement of project affected, and getting environment and forest clearances for opening mines, CIL wanted to rope in mining developers and operators (MDOs).

In 2012, it approached the Planning Commission and asked it to design a model concession agreement.

Yet, far from making the MDOs responsible for any of these processes, the Plan panel’s model turns the onus on CIL. So much so that the miner fears it may have to give up its ready-to-produce assets to the MDOs on 25-year contracts.

A worried CIL, at a meeting last week in Delhi, raised its reservations about the model suggested by the Plan panel. It is now to send a detailed proposal demanding wider legal obligation and risk sharing on the part of the MDOs.

The Planning Commission-drafted 250-page Model Concession Agreement ( Business Line has a copy) makes CIL responsible for clearing all hurdles to mining an area under the PPP mode, including land acquisition, rehabilitation and resettlement, and environment and forest clearances. CIL is also to provide rail connectivity (one of the major problems in stepping up production), right of way, police protection against trespass and so on. CIL is to offer MDOs investment support too.

The MDOs are responsible for production and over and above the 2 per cent annual rate escalation for the mining (initially to be determined through bidding) are entitled to inflation-adjust the rate.

The MDOs are also to get 5 per cent of the land acquisition and rehabilitation and resettlement budget (together the biggest fixed cost) for ‘assisting’ CIL in ‘follow up work’.

The Model Concession sets no legal or financial obligation for MDOs. They will be only subject to an annual inspection by an independent assessor.

It doesn’t stop there. The Planning Commission’s Model Concession Agreement wants each project to achieve financial closure within six months from the date of contract award.

Land acquisition

To ensure there are no land acquisition hurdles, the Plan panel model wants CIL to award MDOs blocks where it has made some progress on land possession. Then it sets stiff time schedule for offering the rest of the land.

The problem for CIL is — can it at all acquire a particular piece land? On its own acreages, CIL often makes a compromise with the mine plan. For instance, at Gevra (35mtpa) it could not take the mine forward (open-cast mining happens towards the direction of the coal seam) for at least one year and till then it mined areas on the sides of the seam.

This discretion it will not have with the MDOs. Worse, failing to meet these conditions can cost CIL a fortune in penalties.

Faced with these plethora of conditions and the penalty clause, CIL may well have to offer MDOs ready-to-produce assets in which it has invested time (seven-eight years for land acquisition and various clearances) and money (crores of rupees) to get all hurdles cleared. Especially as the Prime Minister’s Office has got into the act and is keen that the first such contract be awarded by March 31, 2014.

Seven assets — spread across Jharkhand, Chhatishgarh, Odisha and Maharashtra with capacity to produce 17 million tonnes coal annually — are on the first list.

And at least a dozen larger assets — for instance, Magadh (20 million tonnes a year) and Siarmal (50 mt a year) — may be considered for allotment.

“Administrative and regulatory issues are the prime hurdles to coal mining,” said a CIL official on conditions of anonymity.

“With hundreds of agencies at work from the block level up to Delhi and numerous State laws to abide by, it takes nearly a decade to start mining in any asset. We wanted private players to share this responsibility in the hope of speeding up the approval process. But, in the end, we are left with all the responsibilities.”

Not that CIL does not outsource mining. Nearly half of the 452 million tonnes it produces is through contractors, appointed for three-seven years, mostly to mine remote acreages.

CIL secures all approvals for these areas and monitors the mining on a day-to-day basis.

It prepares the mine plan, and directs the contractor where and how to mine. The contractor is paid for every tonne of output.

Extending this outsourcing model, in 2011, CIL appointed an operator for the 17 million tonne per annum Rajmahal extension project in Jharkhand. The private operator was made equally responsible for land acquisition, rehabilitation and resettlement, and regulatory clearances and shared all risks, including ‘indirect political risks’.

In sharp contrast, in the case of MDOs, Coal India has to take a hands-off approach, merely outlining the production requirement. The operators will be free to decide how to mine.

One-sided document

As a former CIL official said: “I have never seen such a one-sided contract document. It may end up as a major financial drain on CIL and probable escalation in coal prices.”.

“We don’t intend paying penalties for delays in land acquisition or non-availability of forest clearance or for local unrests,” a CIL source said.

When contacted, a senior Coal Ministry official said the Model Agreement is yet to be submitted to the Ministry.

Once submitted, the Ministry proposes to hold inter-ministerial consultations based on which it will move a Cabinet note.

He admitted that CIL’s concerns over the proposed PPP concept were valid but also blamed the miner for trying to hang on to the monopoly granted by the Coal Nationalisation policy.

(With inputs from Siddhartha P. Saikia in Delhi)

pratim.bose@thehindu.co.in