The CAG might choose to call it “unintended benefit” to certain firms rather than loss to the exchequer, but the policy of captive coal blocks formulated in 1993 has clearly given ample opportunity for a veritable cross-section of corporate India to grab the dwindling natural resource for a song and make undue profits at the cost of consumers.
The government chose to allocate captive coal mines to power, steel and cement firms — public and private — as a viable middle path, given the political opposition to privatisation of commercial mining. Clearly, it, wittingly or otherwise, failed to ensure that the policy is not misused.
According to analysts, Jindal Power, a subsidiary of Jindal Steel and Power Ltd (JSPL), Essar Power and Reliance Power are among the companies that have made “undue gains” from the captive coal mines policy.
Jindal Power owns captive coal reserves of 50 million tonnes per annum (mmtpa), which is enough to fire as much as 12,000 MW generation capacity. Cost of coal available from captive mines is much lower compared to the price charged by Coal India. But the policy hardly enures that the company will share the benefits of low fuel cost with consumers when it starts supplying power from upcoming power projects in Chhattisgarh, Jharkhand and Orissa.
Jindal Power has been allocated captive coal mines to meet fuel requirement of its 1,000 MW Tanmar power plant in the Raigarh district of Chhattisgarh. But the developer is selling entire power from the plant in the free market, which fetches a much higher price that what might be allowed under the power purchase agreement, where tariff are set by the regulator.
The company has been selling power at over R5 a unit during peak hours in the open market though its fuel cost is estimated at just R0.45 a unit. In comparison, the price discovered for similar power projects awarded under tariff based bidding has been in the range of R1.5 a unit. So, its return on equity is over 100% compared to the industry norm of 15.5%.
The private developer has allocated 170 MW power to the Chhattisgarh state at a variable cost as a quid pro quo for its support to the project. So, there is little chance of the home state starting penal proceedings against the developer.
Other power companies like Essar Power and Reliance Power too have “unduly benefited” from the captive coal policy that is at odds with the spirit of the Electricity Act which aims to rationalise tariffs through competition.
Essar Power has contracted power supply to Bihar at R3.26 a unit, the rate set by the regulator although its coal costs from captive mines might not justify the tariff. Reliance Power, which has quoted levelised tariff of R1.19 a unit for the Sasan ultra mega power project, will supply power from the nearby Chitrangi power project at R2.45 a unit, though the coal source for both the projects is the same.
The CAG had said last October that the government’s decision to allow Reliance Power to divert surplus coal from its Sasan and Tilaiya captive mines violated bid guidelines and allowed a windfall gain of R1.2 lakh crore to the private developer, although the auditor later revised the gain estimate downwards to around R24,000 crore. Softening its initial stance, the CAG had said the bid documents permitted such diversion. Although the bid document had spelt out how to use surplus coal from these captive mines, the confusion occurred because the allotment letter did not specify usage parameters upfront, it said.
A leaked draft CAG report recently said the government lost as much as R10.67 lakh crore between 2004 and 2009 by not following auction route for allocation of captive coal blocks.
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