Preface

The Report bu been prepanid for submlnlon to the

Presldentofl:ndla under Article 151 oftbe Conrtltutlon.
Tid8 Report of tile Comptroller & Auditor General of
India contahu the resuHa of tbe Performance Audit on
".Allocation of ooal blocb and Augmentation of coal
The w:klealng gap between die demand 1111d
domettic supply of coal and comequendy tbe progrenlvely
Jncreall.ng Jmpona lw uswned a critical lltuatfon warranting
a 1tudy to examine tbe dfectlvenen of the proce1111 adopted In
allocation of coal blocks to Jncreaae cod production and In
terms of tranll)>ueacy and objectiv.lty. The performance by
cn. tn augmenting coal production to meet die demand of die
inf'rastructuft aeeton like Power. Steel and Cement hu
also been analysed. The issue of competitive bidding for
allocation of captive coal blocb in the light of the Ministl.'y of
Coal's initiatives starting from 24104 and the likely benefitl
passed on to the private allotQes by not resortme for
CompetldveBlddlna bu also been broqlltout.
Audit wbhet to acknowledge tile cooperation received
from en. and the Mlnlrtry of Coal at eacb ltage of tbe audit
Pl"OCffl.
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Executive Summary
Coal is the most important indigenous source of energy for Indian economy with a geological
reserve of 2,85,863 million tonne and more than half of the current commercial energy is met by
coal. The widening gap between the demand and domestic production of coal and consequent
increase in coal imports to fill up the gap warranted a study to ex.amine the adequacy and
effectiveness of the action taken by Coal India Limited (CIL) and the Ministry of Coal (MOC)
for augmentation of coal production. This assumes significance as there are instances where
capacities in the power sector have been lying idle or facing difficulties in augmentation of
capacity for want of coal. Further, though the Government of India (Gon has notified certain
sectors which may undertake captive mining of coal, the process of allocation of coal mines
should be objective and transparent.
In the backdrop of the above factors, a Performance Audit on "Allocation of Coal Blocks and
Augmentation of Coal Production" has been conducted. Significant audit findings are narrated
below:
For increasing the production of coal, the Expert Committee, chaired by Shri T.L. Sankar,
on Road Map for Coal Sector Reforms (December 2005) had recommended that the
drilling capacity of Central Mine Planning and Design Institute Limited (CMPDIL) be
enhanced to at least 15 lakh metre per annum. As against it, the expected drilling capacity
ofCMPDIL was only 3.44 lakh metre in 2011-12. (Para 3.2)
The rate of increase in production of coal by CIL during XI plan period remained far
below the target envisaged by the Planning Commission. The low production was due to
inadequate drilling capacities, backlog in overburden removal, mismatch between
excavation and transportation capacities, low availability and under-utilisation of Heavy
Earth Moving Machinery (HEMM) etc. Efforts of the MOC to increase production by
de-reservation of 48 coal blocks of CIL and allocating the same to captive consumers did
not yield the desired results as no production could commence from these blocks.
(Para 3.3)
New Coal Distribution Policy 2007 envisaged better distribution of coal to small and
medium consumers. However, no monitoring mechanism was put in place in CIL for
verification of end use of coal. (Para 3.4)
The guidelines for allocation of captive coal blocks clearly stated that "the blocks offered
to private sector should be at reasonable distance from existing mines and projects of CIL
in order to avoid operational problems". Audit, however, observed that de-reservation of
Moher and Moher-Amlohri Extension from NCL in September 2006 and allocation to
Sasan UMPP resulted in sharing of boundary of Amlohri Opencast Project of NCL with
the private party. As such NCL could not access coal reserve of 48 million tonne of its
Amlohri OCP. This also reduced its project life from 24 to 20 years. Similarly, the
sharing of boundary ofNigahi Opencast Project ofNCL with Moher-Amlohri Extension
resulted in reduction of mineable reserves by 9 million tonne. (Para 3.5)
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production m
There has been a continuous rise in production of coal from the opencast mines by CIL.
However, there was an aggregate shortfall of production in ECL by 9.1 million tonne,
CCL by 5.88 million tonne and MCL by 22.86 million tonne during 2006-07 to 2010-11.
(Para 3.6)
The production from underground mines has stagnated around 43 million tonne from
2006-07 to 2009-10 and decreased to 40 million tonne in 2010-11, which was 9 .28 per
cent of the total production of CIL in 2010-11. (Para 3. 7)
The Screening Committee recommended the allocation of coal block to a particular
allottee I allottees out of all the applicants for that coal block by way of minutes of the
meeting of the Screening Committee. However, there was nothing on record in the said
minutes or in other documents on any comparative evaluation of the applicants for a coal
block which was relied upon by the Screening Committee. Minutes of the Screening
Committee did not indicate how each one of the applicant for a particular coal block was
evaluated. Thus, a transparent method for allocation of coal blocks was not followed by
the Screening Committee. (Para 4.1)
The concept of allocation of captive coal blocks through competitive bidding was first
made public on 28 June 2004 at an interactive meeting held with the stake holders under
the chairmanship of Secretary (Coal). Following the meeting, a comprehensive note on
"Competitive Bidding for allocation of coal blocks" was submitted (16 July 2004) by the
then Secretary (Coal) before the Minister of State, Coal and Mines highlighting that
" ..... since there is a substantial difference between price of coal supplied by Coal
India and coal produced through captive mining, there is a windfall gain to the person
who is allotted a captive block ". It was, therefore, felt necessary by MOC to adopt
a selection process which could be acceptable as demonstrably more transparent and
objective. Auctioning of blocks was considered as one of the widely practised and
acceptable selection process which was transparent and objective. The note further
indicated that the " .. the bidding system will only tap part of the windfall profit for
the public purposes ... ". Despite these facts, the GOI is yet (February 2012) to finalise
the modus operendi of competitive bidding. (Para 4.2)
As of June 2004, 39 coal blocks (net) stood allocated. During the period from July 2004
to September 2006 ( till the time the matter was referred to the Ministry of Mines for
taking action on the issue of amendment of MMDR Act for introduction of competitive
bidding), 71 more blocks (net) were allocated. In all, since July 2004, 142i coal blocks
(net) were allocated to various Governments and private parties following the existing
process of allocation. This allocation lacked transparency and objectivity. While
admitting the above facts, the Ministry stated in March 2012 that the view that the system
; Out of 216 blocks (Para 5.1) allocated. 22 blocks (net) were de-allocated. 39 blocks were allocated prhJr to June
2004, 12 blocks were allocated to UMPP and one block pertains to SCCL.
Performance Audit
lV Allocation of Coal Blocks and Augmentation of Coal Production
of bidding could be introduced through administrative instructions was given by the
Ministry of Law and Justice (MoLJ) on 28 July 2006 for the first time and in the light of
the conflicting opinions, a reference was again made. MoLJ in its opinion dated 30
August 2006 after clarifying rationale for earlier opinion, finally opined that the
administrative ministry may initiate measures for amendment in the MMDR Act. Pending
amendment in the Act, it proceeded to allocate coal blocks on the advice of the ECC of
July 2006. Finally with the amendment in the MMDR Act, rules for auctions by
competitive bidding of coal mines were notified on 2 February 2012 after inter
ministerial consultations. (Para 4.2)
Most importantly, the contention of MOC in 2004-2006 when it was making attempts to
introduce transparency/ competition in allocation of coal blocks was exactly along the
lines of the conclusions of audit. The Hon'ble Supreme Court, in the judgement on 2G
spectrum, has also directed to introduce transparency/competition in allocation of scarce
natural resources. (Para 4.3)
Delay in introduction of the process of competitive bidding has rendered the existing
process beneficial to the private companies. Audit has estimated fmancial gains to the
tune oft 1.86 lakh crore likely to accrue to private coal block allottees (based on average
cost of production and average sale price of Opencast mines of CIL in the year 2010-11).
A part of this financial gain could have accrued to the national exchequer by
operationalising the decision taken years earlier to introduce competitive bidding for
allocation of coal blocks. Therefore, audit is of strong opinion that there is a need for
strict regulatory and monitoring mechanism to ensure that benefit of cheaper coal is
passed on to the consumers. (Para 4.3)
Captive coal mining is a mechanism envisaged to encourage private sector participation
in coal mining. CIL has not been able to increase production to meet the growing
demand for coal for core infrastructure sectors like Power, Steel and Cement etc. With
the declared objective for "Power to all by 2012", the Government allocated 194 (net)
coal blocks with aggregate geological reserves of 44,440 million tonne to Government
and private parties as of 31 March 2011. The procedure followed for allocation of coal
blocks to captive consumers lacked transparency as the allotments of coal blocks to
prospective captive consumers were made merely on the basis of recommendation from
State Governments and other administrative ministries without ensuring transparency and
objectivity. (Para 4.1and5.1 read with Para 1.1and1.6)
Production of coal from captive mining was not encouraging. Out of 86 such coal blocks
which were to produce 73.00 million tonne of coal during 2010-11, only 28 blocks which
included 15 blocks allocated to private sector, could start production by 31 March 2011
and produce only 34.64 million tonne of coal during 2010-11. (Para 5.2)
Coordinated and planned approach by the State Governments and the Central
Government towards commissioning of end-use projects based on coal and the
commencement of production from the captive coal blocks is called for. The abnormal
time taken for obtaining mining leases, surface rights and the subsequent land acquisition,
resettlement/ rehabilitation issues as also enormous delays in obtaining forest and
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production v
environmental clearances from the Central and State Governments have severely
hindered the commencement of production from captive coal blocks. There is a need of a
High Powered Committee as a single window mechanism to expedite actions towards
granting of various approvals. (Para 5.5)
Mines and Minerals (Development and Regulation) Act, 1957 (MMDR) provides that the
Coal Controller's Organisation (CCO) may enter and inspect any colliery with a view to
securing compliance of rules. However, CCO has not conducted any physical inspection
of allocated coal blocks to ascertain the actual progress/production vis-a-vis the
progress/production reported by the allottees. The correctness of the data furnished by the
allottees, therefore, could not be vouched. The Monitoring Committee of MOC was to
review the progress of allocated coal blocks which met quarterly instead of every month.
(Para 5.6)
MOC introduced (March 2005) the system of bank guarantee (BG) to ensure timely
production from the coal blocks. MOC de-allocated 24 blocks upto June 2011 for lack of
initiative for development of coal blocks by the allottees. The Monitoring Committee also
recommended (January and February 2011) for deduction of BG from 15 allottees for
delay in development of coal blocks. However, MOC could not encash the BG, wherever
applicable, from these allottees as the modalities for such encashment were still to be
worked out (November 2011). The Expert Committee also recommended for encashment
of BG in full in such cases. As of November 2011, amount of lapsed BG worked out by
audit wast 311.81 crore against 15 blocks which needed to be renewed. (Para 5.7)
Recommendations:
MOC should
~ With the declared objective of "Power to all by 2012", Government has taken many steps
inter-alia allocating coal blocks for captive mining for power and other sectors in a big
way. It would be worthwhile to make an assessment of the level of success of this
declared objectives so as to make mid course corrections. The need for power in the
economic development of the country will continue to be paramount. Hence, the
criticality of such an assessment and further road map to advance the objective of "Power
to all". There is a need to constitute an empowered group along the lines of Foreign
Investment Promotion Board (FIPB) as a single window mechanism with representatives
of Central nodal ministries and State Governments to grant the necessary clearances such
as mining lease, mining plan, forest clearance, environment management plan and land
acquisition for accelerating the procedures for commencement of production.
In order to bring 'objectivity' and 'transparency' in the allocation and for tapping of a
part of benefit accruing to the allottees of captive coal blocks, MOC should urgently
work out the modalities to implement the procedure of allocation of coal blocks for
captive mining through competitive bidding.
MOC should evolve a system of giving 'incentives' to encourage production performance
from captive coal blocks and 'disincentives' to discourage non/poor performance.
Performance Audit
Vl Allocation of Coal Blocks and Augmentation of Coal Production
CCO should
> Conduct physical inspection of allotted blocks on regular basis.
CILshould
> Fix its production targets in line with the targets fixed by the Planning Commission.
> Expedite setting up of coal washeries as washing capacities of coal are grossly inadequate
in CIL subsidiaries in view of the fact that Indian coal contains higher percentage of ash
and washing of coal is of utmost significance, both for the efficiencies in the user plants
and from the point of view of environmental concerns besides fetching higher returns.
Synchronise its excavation and transportation capacities.
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production vn
Chapter
1
Coal - An Overview
(1.1 Background
Coal is the most valuable and reliable source of energy to the Economy and more than
half of the current commercial energy requirement is met by coal. With the passage of
time, the Power sector has emerged as the main consumer of coal for thermal power
generation in India. Metallurgical and Cement sectors are other major consumers of
coal.
The production of coal assumed greater significance after 2003 when Government of
India (GOI) pronounced a mission "Power to all by 2012". Accordingly, the GOI
envisaged capacity addition of 1,00,000 MW of power by 2012 and in order to meet
this increased capacity, corresponding increase in the coal production was required in
the X to XI Plan periods (i.e. 2002-12).
The roles and responsibilities of various agencies involved in exploration, production
and allocation of coal are indicated below:
Ministry of Coal (MOC)
The Ministry of Coal (MOC) has the overall responsibility of framing policies and
strategies for exploration and development of coal reserves. It also lays down general
guidelines for production, supply and distribution of coal.
Coal Controller's Organisation (CCO)
The Coal Controller's Organisation {CCO) is a subordinate office of MOC having its
headquarters at Kolkata. The CCO discharges various statutory functions such as
inspection of collieries for ensuring class, grade and size of coal, adjudicating claims
of consumers on grade and size of coal; collection and publication of statistical
information on coal and to grant opening/ reopening of coal mines. In 2005, MOC
appointed CCO as the nodal agency for monitoring the production of coal blocks
allocated for captive mining.
Coal India Limited (CIL)
Coal India Limited (CIL), a Maharatna Company, under MOC, was incorporated in
November 1975. CIL has seven wholly owned coal producing subsidiaries, i.e. Bharat
Coking Coal Limited (BCCL), Central Coalfields Limited (CCL), Eastern Coalfields
Limited (ECL), Mahanadi Coalfields Limited (MCL), Northern Coalfields Limited
(NCL), South Eastern Coalfields Limited (SECL), Western Coalfields Limited
(WCL) and one mine planning and consultancy company viz. Central Mine Planning
and Design Institute Limited (CMPDIL).
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 1
CIL is the largest coal producing company in the world. It produced 431.32 million
tonne of coal and earned a net profit o f ~ 10,867 crore during 2010-11. As on 31
March 2011, CIL operates 4 71 mines across eight states in India. Of these, 163 were
open cast mines, 273 underground mines and 35 mixed mines.
Central Mine Planning and Design Institute Limited (CMPDIL)
CMPDIL provides technical support to the seven producing subsidiary companies in
the area of geological exploration and drilling, project planning and designing,
engineering services, research and development, environmental services etc.
Besides, Geological Survey of India (GS!) and Mineral Exploration Corporation
Limited (MECL) undertake prospecting in areas that could potentially have coal
reserves. Such prospecting is funded by the GO!. Detailed exploration is entrusted to
CMPDIL, which based on the results of detailed drilling, prepares geological reports
for a block area. After the result of regionaV promotional drilling has been analysed, it
in turn, forms the basis of planning and designing of mines, preparation of mine plans
and deciding on the mine capacity that can be sustained for the reserves in the block.
Coal reserves in the country
The table below indicates the quantum of Geological Reserves (GR) of coal available
in the country:
(Figures in million tonne)
As on Geological reserves of coal in the country
Proved.
1
IndicatedJ lnferred.
3
Total
1 January 2006 95,866 119,769 37,666 253,301
1 April2007 99,060 120,177 38,144 257,381
1 April2008 101,829 124,216 38,490 264,535
1 April2009 105,820 123,470 37,920 267,210
1 April2010 109,798 130,654 36,358 276,810
1 April2011 114,002 137,471 34,390 285,863
As may be seen from the above, the total GR of coal in India as of 01 April 2011,
stood at 2,85,863 million tonne, of which 1,14,002 million tonne was in the 'Proved'
category, 1,37,471 million tonne was in the 'Indicated' category and 34,390 million
tonne was in the 'Inferred' category. Over the last five years, the coal reserves have
increased by 32,562 million tonne.
1
Represents resource base with the highest confidence level of90%.
2
Represents resource base with confidence level of 70%.
J Represents resource base with confidence level of 40%.
Performance Audit
2 Allocation of Coal Blocks and Augmentation of Coal Production
1.3 N ati.onal coal demand
The Planning Commission projected a demand of 731.10 million tonne of coal for the
tenninal year of the XI Plan, i.e. 2011-12, based on a cumulative annual growth rate
(CAGR) of 9.7 per cent. In the mid-term appraisal, the Planning Commission revised
the demand for coal to 713.24 million tonne for the tenninal year based on a CAGR
of 8.98 per cent. The sector-wise demand forecasts for 2011-12, as per the original
projections and mid-term appraisal of the XI Plan are given in table below.
(Figures in million tonne)
Sector Demand projection by Plannning Commision
Original Revised
Power 483.00 473.00
Captive Power Plants 68.50 68.50
Steel 31.90 33.35
Cement 57.06 47.00
Others 90.54 91.39
Total 731.00 713.24
Domestic production of coal
The Planning Commission envisaged coal production to reach 680 million tonne
(520.50 million tonne for CIL) in 2011-12. The incremental production envisaged was
247.50 million tonne as against 104.71 million tonne in the X Plan. CIL was expected
to add 156.70 million tonne, Singareni Collieries Company Limited (SCCL) 3.30
million tonne and captive blocks 86.53 million tonne.
In the mid-term appraisal, the Planning Commission revised coal production target
from 680 million tonne to 629.91 million tonne (520.50 million tonne to 486.50
million tonne for CIL) for 2011-12, mainly because 17 major projects of CIL, which
were to contribute 100.65 million tonne were expected to contribute only 46.72
million tonne due to delays in getting necessary forest and environmental clearances.
Coal production by CIL
At present, CIL contributes about 81.10 per cent of the total supply of coal to various
consumers in the country as per the New Coal Distribution Policy (NCDP) 2007
which came into force from 18 October 2007. The new policy envisages distribution
of coal mainly through two channels - Fuel Supply Agreements (FSAs)4 at notified
' All the existing linkage holders of erstwhile core and non-core sectors not having FSAs were
required to enter into FSA with the coal companies. The concept of core and non-core sector was
discontinued after NCDP 2007.
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 3
prices to be fixed and declared by CIL and e-auction. The balance for consumers with
requirements upto 4,200 tonne per annum, is through the agencies nominated by the
State Governments at notified prices of CIL plus actual freight and service charge.
1.5 National demand - supply gap of coal
Discussion paper on Annual Plan 2012-13 furnished by MOC to the Planning
Commission indicated that gap between demand and supply of coal will be met by
import. The import policy allows coal to be freely imported under Open General
License by the consumers themselves considering their need and exercising their own
commercial prudence. Gap between demand and supply of coal vis-a-vis actual
import, as worked out by the Planning Commission, is shown in Chart below.
900
800
700
600
500
400
300
200
100
L
o
Gap in demand and supply of coal
2007-08 2008-09 2009-10
693.70
2010-11
(Figures in million tonne)
Demand
Domestic supply
D Total Import
It may be seen from above graph that due to the gap in demand supply of coal, the
quantum of import increased from 49.80 million tonne in 2007-08 to 68.92 million
tonne in 2010-11 which had an adverse impact on the country's foreign currency
outgo.
Allocation of coal blocks
Under the Coal Mines (Nationalisation) Act 1973, coal mining was exclusively
reserved for the public sector. However, Coal Mines (Nationalisation) Amendment
Act, 1976 allowed the following exceptions to the above policy, viz.,
Captive mining by private companies engaged in production of iron and steel,
and
Sub lease for coal mining to private parties in isolated small pockets not
amenable to economic development and not requiring rail transport.
Performance Audit
4 Allocation of Coal Blocks and Augmentation of Coal Production
The process was carried further by another amendment to the Coal Mines
(Nationalisation) Amendment Act in 1993 which allowed coal mining for captive
consumption for power generation and other end uses to be notified by the
Government from time to time. Thus, mining of coal by Indian private companies was
allowed in phases for their end use in iron and steel production, generation of power,
and cement production.
In July 1992, Government of India constituted a Screening Committee
5
for screening
proposals received for captive mining by the private power generation companies.
The significant events are listed in Annexure-1.
Till 2004, there was no clearly spelt out criteria for allocation of coal mines and most
of the mines were allocated to the
applicants who had produced only
a letter of recommendation from
the concerned State Government
indicating that the party was
planning to set up a permitted end
use project of specified capacity.
Meanwhile, GOI constituted
(December 2004 ), an Expert
Committee on Road Map for Coal
Sector Reforms (Expert
Committee) headed by Shri T. L.
Sankar, Chairman, Energy Group
Administrative Staff College of
India to prepare a comprehensive
roadmap for modernisation of the
coal sector. The major
recommendations (2005) of the
Expert Committee are included at
Annexure-11.
Major recommendations of Expert Committee
(2005)
> Continue to regulate price of coal to ensure
least cost of supply of coal for power
generation while allowing a competitive and
transparent coal market to supply the needs
of other consumers.
> Emphasis on the role of captive mining to
contribute significantly to the production of
the coal in the short to medium term.
> The procedure and processes of allocation of
coal blocks needed to be improved to
expedite the allotment of captive coal blocks
in a transparent and effective manner.
> Production from captive mines during mine
development or periodic surpluses during
mine operations must be sold to CILJSCCL
at negotiated price.
> Encashment of bank guarantees of non-
serious players.
> De-reservation of CIL coal blocks that
cannot be put into production before 2026-
27.
)> Setting up a permanent special task force for
monitoring progress of clearances and
project implementation to enhance the
domestic coal capacity.
5
Under the cllaiTmansllip of the Additio1Ull SeCTetary, MOC, and Advisor(Projects), MOC, Joint Secretary, and
Financial Adviser, RepreselltalWu of the Ministry of Railwtzys, Power and the concerned State GoVf!1'11111(!!nt as
members.
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 5
The GOI framed (1993) the guidelines for allocation of coal blocks which, in order to
improve the system and bring transparency for deciding the inter se priority amongst
the competing applicants, were modified by the MOC in 2005, 2006 and 2008. Brief
of these guidelines is given below:
> MOC in consultation with public sector coal companies would identify and
prepare a list of such coal blocks for allocation.
> From the blocks so identified, MOC would invite applications for a few blocks
at a time through advertisements in important national and regional newspapers.
> For allocation under Government dispensation, the list of identified blocks
would be circulated inviting applications from the concerned Government companies.
> These applications would be scrutinised by a Screening Committee under the
Chairmanship of Secretary (Coal) and recommended for allocation of the blocks.
Till March 2011, the MOC has allocated 194 coal blocks (net)
6
(44,440 million tonne)
for captive mining of which 142 were explored blocks (GR: 23,391 million tonne) and
the balance 52 were either regionally explored or unexplored coal blocks (GR: 21,049
million tonne).
6
After taking into consideration de-allocation and re-allocation of coal blocks.
Performance Audit
6 Allocation of Coal Blocks and Augmentation of Coal Production
Chapter
2
Audit Framework
2.1 Audit objectives
Gap between demand and domestic supply of coal is widening in the country and
consequently imports are progressively increasing. On the other hand there are
instances where capacities in power plants are either lying idle or facing difficulties in
augmentation in capacity for want of coal. In the backdrop of these concerns,
Performance Audit on
1
Allocation of Coal Blocks and Augmentation of Coal
Production has been undertaken to obtain assurance that:
CIL augmented its production capacities as planned:
Procedures followed for allocation of coal blocks for captive mining ensured
objectivity and transparency;
Coal blocks allocated for captive mining augmented production of coal as
envisaged.
Scope of audit
Performance Audit has covered the period 2006-07 to 2010-11 and allocation of coal
blocks by MOC from 2004 onwards. Records of MOC, CCO, CIL and its subsidiaries
were test-checked during September to November 2011. Entry Conference with CIL
and its subsidiaries was held on 16 September 2011 and with MOC on 13 October
2011. Two Exit Conferences were held on 9 February 2012 and 9 March 2012.
Audit criteria
The main criteria followed by audit were:
Projections of the Planning Commission regarding demand and supply of coal
and related parameters for the XI Plan and in the mid-term appraisal of the XI Plan.
Performance parameters fixed by MOC and CIL for various activities related
to production, supply and distribution of coal.
Policies, procedures and guidelines regarding
:> Allocation and monitoring of coal blocks,
:> Production, supply, distribution and pricing of coal.
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 7
Results Framework Document (RFD) for MOC and Memorandum of
Understanding (MoU) of CIL. and its subsidiaries with MOC.
Audit wishes to acknowledge active cooperation and assistance provided by MOC,
CIL. and CCO at all levels of management which facilitated the completion of this
Performance audit.
Performance Audit
8 Allocation of Coal Blocks and Augmentation of Coal Production
Chapter
3
Augmentation of Coal Production
3.1 Estimation of Coal Reserves
In India, estimation of coal reserves is computed by GSI on the basis of the Indian
Standard Procedure (ISP) code of 1956. It is a geological reserve classification system
which addresses only the volume and tonnage, i.e. the reserve of coal and not the
actual structural delineation. The structural delineation provides valuable information
so that the reserves are economically and technically amenable to extraction.
Though GOI took a decision in May 2001 to do away with ISP and implement the
internationally accepted system of United Nations Framework Classification (UNFC)
for minerals which lays down a standard procedure for calculating the size of reserves
and resources based on a three-dimension system with technical feasibility, economic
viability and geological estimate, no action was taken till the PMO directed (April
2007) the MOC to examine the issue. Consequently, CMPDIL undertook (November
2011) a study for converting the existing system of coal reserve classification to
UNFC. The draft report has since been submitted (March 2012) by CMPDIL to the
001. Final decision in the matter is awaited.
Inadequate drilling capacities for proving reserves
The Expert Committee (December 2005) had suggested that MOC should make all
possible efforts to enhance the drilling capacity of CMPDIL from 3 lakh metre per
annum to at least 15 lakh metre per annum.
Audit noticed that target for exploratory drilling by CMPDIL and others in the XI
Plan period was 7.50 lakh metre for CIL blocks and 13.70 lakh metre for non-CIL
blocks against which the achievements were 5.88 lakh metre and 7.82 lakh metre
respectively, leading to a shortfall by 1.62 lakh metre (CIL blocks) and 5.88 lakh
metre (non-CIL blocks) vis-a-vis the targets of the XI Plan. As of March 2011, 1828
million tonne of coal reserve was established. The drilling capacity of CMPDIL was
expected to be only 3 .44 lakh metre in 2010-11 as against the target of 15 lakh metre
per annum as suggested by the Expert Committee.
The Ministry stated (February 2012) that in case of regional exploration against a
target of 7.47 lakh metre of drilling (revised estimate), 5.30 lakh metre was achieved
upto January 2012. The expected achievement at the end of XI Plan is 5.69 lakh
metre. The shortfall of 1.78 lakh metre in drilling is stated to be non availability of
forest clearance despite active persuasion by CMPDIL. The Ministry further added
that as regards detailed exploration in non-CIL blocks, CMPDIL has submitted a
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 9
scheme to undertake 13.50 lakh metre of detailed drilling. The likely achievement
(other than outsourcing) was 7. 62 lakh metre of drilling agaimt the target of 7.12
lakh metre (revised estimate). Outsourcing of drilling work of 18 blocks involving
7.28 lakh metre of drilling was proposed to be completed in three years after
awarding the contract in 2008-09 as agaimt which the achievement (upto January
2012) was 4.97 lakh metre. Thus a balance of 2.31 lakh metre of drilling was required
to be completed in the last two months of the terminal year of XI Plan. Low progress
in drilling was due to non-clearance of forest land It was further stated that
enhancement of departmental capacity through expansion and modernisation was
taken by introduction of mechanical equipment and additional drills. In respect of
drilling in CIL areas, it was proposed to drill 5 lakh metre in the XI Plan agaimt
which 11.2 lakh metre of drilling was likely to be achieved.
In brief, CMPDIL needs to increase its drilling capacity of non-CIL blocks as also
engage other agencies for accelerated exploration, assessment of coal reserves and
preparation of geological reports.
Production of Coal by CIL
Production by CIL against its internal targets and the targets fixed by the Planning
Commission for five years ending 31 March 2011 is given below:
600
500
400
300
200
100
0
2006-07 2007-08 2008-09 2009-10 2010-11
C Planning Commission 360.93 384.51 411.36 449.49 482.38
CIL Target
363.80 384.51 405.00 435.00 460.50
D CIL Achievement 360.92 379.46 403.73 431.26 431.32
(Figures in million tonne)
C Planning Commission
CIL Target
D CIL Achievement
As would be seen from the above, the annual production of CIL has been more or less in
line with its internal targets during the period from 2006-07 to 2010-11. The annual
production ranged between 99 .21 per cent and 99 .14 per cent of the targeted production
during 2006-07 to 2009-10, but, decreased to 93.66 per cent in 2010-11. However
estimated production (April 2011) for 2011-12 were short of targets fixed by the
Planning Commission by 73.50 million tonne and 39.50 million tonne as per the original
and revised targets respectively. Against an envisaged growth rate of 43.07 per cent
(original) and 33.73 per cent (revised) for XI Plan, the actual growth in production
Performance Audit
10 Allocation of Coal Blocks and Augmentation of Coal Production
was only 19.51 per cent in four years till 2010-11. Even the reduced target of
production by the Planning Commission in the mid-term appraisal, was further
lowered by 8.12 per cent by CIL for 2011-12.
The main grounds for fixation of lower production targets were delays in environment
and forest clearances and non-availability of sufficient number of railway wagons.
Non achievement of targets by CIL resulted in the following:
CIL failed to supply 54.41 million tonne of coal as per the Fuel Supply
Agreements (FSA) during the period 2008-09
7
and 2010-11.
Planning Commission suggested sale of at least 20 per cent of the non-coking
coal production through e-auction for effective discovery of market price of coal. The
Expert Committee (December 2005) also recommended e-auction sale for a minimum
of 10 per cent of domestic production initially and thereafter increase the same to 20
per cent by the third year and to reach 30 per cent over a period of 5 to 7 years. New
Coal Distribution Policy 2007 (NCDP) envisaged that around 10 per cent of annual
production would initially be offered for e-auction. The percentage of e-auction of
non-coking coal production was 12.96, 11.57 and 11.94 during 2008-09, 2009-10 and
2010-11 respectively. Although e-auction prices were above the notified prices by
58.10 to 80. 70 per cent, higher e-auction sales could not be resorted to as CIL failed
to meet its commitments under the FSA.
The Ministry stated (February 2012) that the production target wasfaed by Planning
Commission on the basis of assessed demand of coal from various stakeholders
(Power, Steel and other sectors) whereas GIL 's production target was faed keeping
in view the actual peiformance of previous years with an expected growth rate.
However, the projected level of power generation reduced from 1,00,000 MW in the
beginning of the XI Plan period to about 70,000 MW, causing decrease in demand of
coal. Even with reduced rate of production, the accumulation of stock within the X
plan period increased from 45.60 million tonne (as on 1 April 2008) to 69.17 million
tonne by the end of 2010-11, giving no room for further production. Besides, there
were other reasons
8
also which acted as an impediment for expansion of new projects
resulting in the variations of the targets from original XI Plan document and Mid
Term Appraisal.
The reply of the Ministry is to be viewed in the light of the following:
CIL failed to meet the FSA commitments, which gradually increased over the
years.
7
The earlier years of XI Plan have not been mentioned as the system of linkage was replaced by FSA
in October 2007 as per NCDP 2007.
1
Embargo imposed in view of Comprehensive Environmental Pollution Index (CEPI}, delay in forestry
and environmental clearance, evacuation problem, low and order problem mainly in Jhorkhand
and Orisso, delay in land acquisition and rehabilitation and resettlement problems.
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 11
There were large imports of non-coking coal over the years.
Even after mid- term corrections by Planning Commission, there was further
down scaling of the targets/production by CIL.
3.4 Absence of mechanism for monitoring end use of Coal
New Coal Distribution Policy, 2007 (NCDP) envisages distribution of coal to small
and medium consumers an effective manner. However, no mechanism is in place in
the subsidiaries of CIL to monitor supply of coal through state nominated agencies
and to verify the end use of coal. Non-verification of credentials not only defeats the
objectives of NCDP for distribution of coal to small and medium consumers, but is
also fraught with the risks of diversion and sale in the black market.
The Ministry stated (February 2012) that CCL, one ofCIL subsidiaries introduced the
system of verification of documents from such consumers and it was decided that the
efficacy or implementation of this system would be obtained from the subsidiary.
Based on the same, a decision on the system of verification of consumers would be
decided by the Ministry.
De-reservation of CIL coal blocks
CIL carried out an exercise in 2004 for identification of coal blocks required for
maintaining the production at the XI Plan level upto 2036-37 and 289 additional
blocks were identified. The total reserves to be retained by CIL, together with the then
existing mines and projects, worked out to around 93,000 million tonne.
Energy Coordination Committee
9
(ECC) constituted by the Hon 'ble Prime Minister of
India, in July 2005, decided (February 2006) that since out of 289 coal blocks (229
explored and 60 unexplored) reserved for CIL till then, only 150 blocks were planned
for production by CIL upto 2011-12, in the interest of increasing the supply of coal in
the country, some of the 79 coal blocks which were explored in detail should also be
made available to others for mining.
MOC advised CIL to retain only those blocks which were projected for production by
the terminal year of the XI Plan and relinquish the remaining blocks for captive
allocation. Accordingly, MOC de-reserved (May 2006) 48 CIL blocks with 9217.27
million tonne of coal reserves (40 explored with GR of 5831.27 million tonne and 8
unexplored with GR of 33 86 million tonne) for captive allocation. This, together with
5 CIL Blocks allotted (January 2006) to NTPC Limited and three blocks (Moher and
9
Chaired by the Hon'ble Prime Minister, with Ministers of nodal Ministries (Finance, Power,
Petroleum), Planning Commission etc.
Performance Audit
12 Allocation of Coal Blocks and Augmentation of Coal Production
Moher Amlohri allotted in September 2006 and Chhatrasal allotted in October 2008)
to Sasan UMPP, led to a further release of 3780 million tonne of coal reserves from
CIT.. After the de-reservation of the above blocks, CIT. was left with around 81500
million tonne of coal reserves.
Audit examined the status of these 48 blocks de-reserved from CIL as of June 2011
and found the following:
Nine blocks remained un-allocated.
Three were de-allocated after allocation.
Nine blocks were yet to commence production. In these, the normative
production date was over.
In the balance 27 blocks, normative production schedules were from July 2011
to April 2014.
Further, the guidelines for allocation of captive coal blocks clearly stated that "the
blocks offered to private sector should be at reasonable distance from existing mines
and projects of CIL in order to avoid operational problems". Audit, however,
observed that de-reservation of Moher and Moher-Amlohri Extension from NCL in
September 2006 and allocation to Sasan UMPP resulted in sharing of boundary of
Amlohri Opencast Project of NCL with the private party. As such NCL could not
access coal reserve of 48 million tonne of its Amlohri OCP. This also reduced its
project life from 24 to 20 years. Similarly, the sharing of boundary of Nigahi
Opencast Project of NCL with Moher-Amlohri Extension resulted in reduction of
mineable reserves by 9 million tonne.
Contrary to the expectations of the Energy Coordination Committee for early
realisation of production potential offered by these proven coal reserves, no
production could take place. While CIT. had to relinquish these coal blocks, no
production could materialize from these blocks. Thus, the expectation of early
realisation of coal reserves by de-reservation of coal blocks from CIT. on urgent basis
and re-allocation of the same to other parties remained unfulfilled.
CII.. has been engaged in working on an 'Emergency Production Plan' in the Xth Plan
to meet the rising demand of coal by advancing the production schedule in 12 existing
mines/ ongoing projects and by taking up four new projects through outsourcing
production of coal and removal of overburden. With de-reserving of CIT. coal blocks
for captive mining, it was imperative that the requests of CII.. for additional blocks are
considered on priority.
Audit, however, noted that requests of CIL for additional blocks were not acceded
to/acted upon by MOC as discussed below:
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 13
CIL requested (August 2008) MOC to allocate 138 blocks with reserves of
57570 million tonne. This was revised (September 2011) by CIL to 116 blocks with
49790 million tonne of GR. Final decision of MOC is however awaited. This would
adversely affect the production plans of CIL.
MOC allocated (November 2008) Rajhara North block for captive mining by
de-reserving from CIL despite the request made (January 2008) by CIL for not
de-reserving the block, which had created a surplus of more than 400 employees.
MOC allotted (October 2009) Moira Modhujore North block for captive
mining which was inadvertently included in the list of blocks for allotment to other
players and the request of ECL not to de-reserve was turned down (January 2008) by
MOC. At the time of de-reservation, ECL had already worked partially in the block
and it was also necessary for ECL to increase its production substantially under the
revival package (November 2004) of BIFR.
The Behraband North and Vijay Central coal blocks under mitring lease of
SECL were de-reserved from CIL. These blocks were to be developed as a highly
mechanized high capacity underground mine for SECL. The Behraband North block
was operated by SECL before de-reservation. The above blocks had not been
allocated by MOC till November 2011, thereby defeating the purpose of de-
reservation of these blocks from SECL.
The Ministry stated (February 2012) that the proposal to de-allocate the coal blocks
which were not part of the plans of CIL till 2026-27 is only a recommendation of the
Expert Committee constituted to give a report on the reforms in coal sector whereas
identifying the blocks which are to be mined by CIL in the 12th Plan period and
beyond for allocation is the decision of Energy Coordination Committee (ECC),
which was meant to improve the availability of power. The Ministry further added
that the revised list of blocks requested by CIL for allocation is under consideration of
the Government and that these blocks are not likely to come into production during
12th or 13th Plan periods. As far as coal blocks- Rajhara North, Moira Modhujore,
Behrabandh North and Vijay Central are concerned, it added that these blocks
were identified by CIL/CMPDIL themselves in pursuance of the decision of ECC,
which were not likely to come into production by 12th Plan.for allocation for captive
purposes. Further, there is delay in allocation of Behrabandh North and Vijay
Central coal blocks due to court cases. The Vijay Central coal block has been allotted
to CIL/SECL as leader in leader-associate model on 01.11.2011. On transfer of land
from NCL to Sasan Power Ltd, consultations were held in the MOC. NCL has been
asked to resolve the matter as per the legal opinion given by Department of Legal
Affairs on the issue of transfer of land acquired under Coal Bearing Act.
The contention of the Ministry is not appreciated in view of the following:
CIL had stated (March 2006 and August 2008) that the idea of releasing
blocks not required by CIL for production purpose upto the end of Xlth Plan was not
in the best interest of CIL or the country.
Performance Audit
14 Allocation of Coal Blocks and Augmentation of Coal Production
Study carried out by CIL in 2006 depicted that the production from the blocks
available with CIL would attain a peak of 664 million tonne in 2016-17 and
thereafter, would decline to 642 million tonne in 2021-22 and 619 million tonne in
2026-27. The decline would accelerate after 2026-27 due to exhaustion of existing
mines and reserves of completed projects.
De-reservation of CIL blocks was against the recommendation of the Expert
Committee on Road Map for Coal Sector Reforms (December 2005) which advocated
de-reservation of CIL blocks that cannot be put into production before 2026-27.
ECC decided (February 2006) the basis on which the said 48 blocks were
taken out from CIL after the submission (December 2005) of the report by the Expert
Committee with a view to improve the availability of power. However, as observed
above, de-reservation has not yielded any result so far.
As per NCDP 2007, CIL has to meet the coal demand of all the customers in
India as per the extant rules given in the policy even by resorting to imports. In fact,
CIL had stated (August 2008) that even import of coal arising from widening gap
between demand and domestic availability of coal would not be feasible due to
constraints of port, infrastructure and availability of coal in international market. The
several explored blocks with substantial reserve were taken away from CIL. CIL
would now have to increase production from unexplored blocks which would take
longer time to develop. After de- reservation of 48 CIL blocks, CIL demanded for
additional 138 unexplored blocks (approximately 57570 million tonne geological
reserves) in August 2008. This is still under the consideration of MOC.
Production Performance of open cast mines
During the period from 2006-07 to 2010-11, open cast mines contributed 88 to 90
percent of the total production of CIL. The production of the open cast mines of CIL
during the above period was as below:
(Figures in million tonne)
CompllllJ 2006-07 2007-08 2008-09 2009-10 2010-11
Target Actual Target Actual Target Actual Target Actual Target Actual
ECL 22.57 22.20 23.18 15.74 20.34 19.74 21.75 21.83 24.20 23.43
BCCL 19.59 19.30 20.62 20.75 21.50 21.38 23.45 23.61 24.75 25.31
CCL 39.97 39.36 42.00 42.32 44.74 41.68 46.05 45.61 48.34 46.25
NCL 52.00 52.16 58.00 59.62 61.25 63.65 66.50 67.67 72.00 66.25
WCL 32.10 33.30 32.39 33.53 32.75 34.59 34.85 36.12 36.35 34.95
SECL 71.00 72.30 74.04 11.05 78.00 83.58 88.50 90.18 93.50 95.90
MCL 11.59 78.03 85.60 85.89 96.11 94.19 107.20 101.88 114.46 98.11
NEC 0.90 0.94 1.70 1.01 1.02 0.96 1.20 1.11 1.25 1.10
CIL 31S.72 317.59 337.53 33S.91 3SS.71 3S9.77 389.SO 388.01 414.lS 391.30
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 15
It would be seen from the above that there has been continuous rise in production of coal from
the open cast mines by CIL. However, there was an aggregate shortfall of production in ECL
by 9.1 million tonne, CCL by 5.88 million tonne and MCL by 22.86 million tonne during
2006-07 to 2010-11.
The Ministry stated (February 2012) that the aggregate shortfall in production in the mines of
ECL, CCL and MCL was mainly due to severe land acquisition and rehabilitation problems.
Moreover, evacuation problems (supply of rakes) in some growing coalfields i.e., North
Karanpura, Talcher, IB Valley and Mand Raigarh, caused build up of pit head stocks which
resulted in restrictions of production in some subsidiaries. However, action would be taken to
increase production in opencast and underground mines by introduction of appropriate
technology, infrastructure and proper monitoring at every level.
3.6J. Backlog in removal of overburden hindering production
In the open cast mines, coal can be accessed only when overburden
10
(OB) is
removed. Backlogs in OB removal have adverse effect on the production of coal. The
shortfall in OB removal ranged from 5 to 12.5 per cent.
Reasons for shortfall in OB removal as analysed in audit in the four subsidiaries
(ECL, CCL, NCL and WCL) were as follows:
Failure of departmental equipments in Rajmahal and labour problems in
Sonepur Bazari and Kottad.ih (ECL);
Delays in forest clearance and release of land at Konar, North Urimari, Karo
and Rohini; law and order problems (CCL);
Sliding of OB benches in Umrer (WCL);
Delays in award of contracts for removal of OB in Dudhichua, Nigahi,
Amlohri and Bina; delays in supply of equipment, poor performance of shovels and
dumpers, release of land at Khadia (NCL) etc.
The Ministry stated (February 2012) that backlog of OB is generally calculated on
the basis of average Stripping Ratio (SR). The project report specified only one ratio
for the entire life of the project which was not correct and needed to be broken down
in different stages of working. The present methodology is to calculate the actual
requirement of OB to be removed depending upon the situation and as such may not
tally with one single figure of SR mentioned in the Project Report.
Jo The rock, soil and eco-system that lies abollf!! a coal seam or ore body which is rema11ed during
surface mining.
Performance Audit
16 Allocation of Coal Blocks and Augmentation of Coal Production
Sub1lcHar
iell/CIL
ECL
DCCL
CCL
NCL
WCL
SECL
MCL
NEC
CIL
The method adopted by CIL to ascertain the performance in OB removal at the end of
a particular year is the quantity by which the actual removal of OB falls short of
targeted removal in that year. However, the actual backlog in OB removal on a
particular date should be worked out on the basis of cumulative backlog of OB
removal. Cumulative OB removal backlog in any specific year is calculated by
subtracting total quantity of OB removed till that year from total quantity of OB
required to be removed up to that year as per average stripping ratio mentioned in the
project report. The cumulative backlog in removal of OB would exceed the backlog
as calculated by CIL since the targeted removal is generally lower as it is based on the
existing excavation and transportation capacities and not on the average SR (OB to
coal) given in the project report. The cumulative backlog also indicates the exact
status of mining in an open cast mine.
Management should rectify the methodology to break down the stripping ratio in
different stages of working instead of adopting one single ratio under the existing
system.
Production performance of underground mines
In underground mining, holes are drilled and blasted in the exposed coal seams. The
blasted materials are mined by conventional or though mechanised/
semi-mechanised method and loaded manually or mechanically and brought to the
surface from the underground by conveyors and transported for crushing, eventual
storage and despatch.
During 2006-07 to 2010-11, seven underground projects with a capacity addition of
2.36 million tonne were completed with a capital outlay o f ~ 253.01 crore. The
production performance of underground mines of CIL subsidiaries from 2006-07 to
2010-11 is given in table below:
Targets and achievements of underground mines
(Figures in million tonne)
2()()(M)7 2007--08 2008-09 2009-10 2010-11
Target Actual Target Actual Target Actual Target Actual Target Actual
10.43 8.27 10.23 8.32 10.66 8.39 9.25 8.23 9.50 7.37
S.61 4.90 4.58 4.46 5.00 4.13 4.55 3.90 4.25 3.70
2.03 1.96 2.00 1.83 2.26 1.56 1.95 1.47 1.66 1.27
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
9.90 9.92 10.01 9.98 10.30 10.11 10.15 9.62 10.15 8.71
17.50 16.20 17.46 16.74 18.00 17.57 17.50 17.83 18.50 16.80
2.41 1.97 2.40 2.12 2.89 2.15 2.10 2.20 2.29 2.17
0.20 0.11 0.30 0.09 0.18 0.05 0.00 0.00 0.00 0.002
48.08 43.32 46.98 43.54 49.29 43.96 45.50 43.25 46.35 40.02
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 17
As would be seen from table that production from 1Ulderground mines has stagnated around
43 million tonne from 2006-07 to 2009-10 and decreased to 40 million tonne in 2010-11,
which was 9.28 per cent of the total production of CIL in 2010-11.
3.8 Washing of coal
Indian coal contains higher percentage of ash as compared to coal of major coal
exporting countries. Hence, washing of coal becomes necessary to ensure a more
consistent fuel supply to the steel (coking coal) and power (non-coking coal) sectors.
The existing washeries of CIL were not able to cater the coal washing requirements
and were depending on private washeries.
In order to bridge the gap, CIL decided to set up 20 coal washeries with a total
throughput capacity of 111 million tonne per year, out of which seven were coking
coal washeries with a total capacity of 21.1 million tonne per year and 13 were non-
coking washeries with a total capacity of 90 million tonne per year. The washeries
were to be developed on 'Build Operate and Maintain' mode. CIL's efforts for
proposed augmentation of production of washed coal were still under process
(Feburary 2012).
The Ministry attributed (February 2012) delay in implementing the washery projects
to forestry/ environment clearance, land acquisition, re-tendering, evaluation of
tender etc.
Mismatch between excavation and transport capacities
Excavation and transport capacities require synchronisation. Mine capacity of an
individual project is assessed by CMPDIL with reference to the population of Heavy
Earth Moving Machinery (HEMM) and their capacity both for Excavation
Transportation.
CMPDIL reported (March 2011) that in 31 projects, the excavation capacity was more
than the transportation capacity and in 12 projects excavation capacity was lower than
transportation capacity. Such mismatch adversely affects production on one hand
where excavation capacity was more but could not be utilised leading to accumulation
at pit head. On the other hand, where the transport capacity was more, CIL could not
utilise its dumpers and shovel for increasing production.
The Ministry stated (February 2012) that bridging the mismatch of excavation and
transport capacities was an ongoing process as far as feasible. This was achieved by
shifting of existing equipment from one mine to another to the extent possible,
surveying off of equipments which covered their rated life and providing replacement
for equipments.
Performance Audit
18 Allocation of Coal Blocks and Augmentation of Coal Production
3.10 Lower availability and lower utilization of HEMM
In order to achieve the original XI Plan target of 520.50 million tonne of coal
production by CIL in 2011-12, MOC envisaged certain population of HEMM for CIL
in its Report on 'Overview on Coal Industry in India' (June 2007). Actual population
of HEMM in CIL during the period from 2006-07 to 2010-11 vis-a-vis those
envisaged in the above report is as below.
Name of Ason31 Ason31 As on31 As on 31 Ason31 Population
equipment March March March March March envisaged by
2007 2008 2009 2010 2011 MOC as on
31 March
2012
Dragline 41 41 40 40 40 119
Shovel 686 687 703 747 754 843
Dumper 3364 3240 3293 3366 3217 3555
Dozer 989 998 1025 991 981 805
Drill 696 744 754 713 709 655
As would be seen from table, there is significant shortfall in the population of
Dragline, followed by Shovels and Dumpers. The population of Dumpers and Dozers
are on the decline.
Norms for availability and utilisation percentage of HEMM were fixed by CMPDIL
way back in 1986 and have not been revised till date (November 2011). With the
improvement in technology and performance of HEMM, any comparison of actual
percentage of availability and utilization vis-a-vis such norms would not depict the
realistic position of availability and utilisation of HEMM.
Audit further observed that CIL depicts availability and utilisation of HEMM as
percentage of CMPDIL norms, instead of depicting the actual percentages. Audit re-
calculated the actual percent.age of availability and utilisation of HEMM in CIL as a
whole and compared the same with the CMPDIL norms. The results are shown in
table below.
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 19
No. Equipment Availability percentage Utilisation percentage
CMPDIL Actual during CMPDIL Actual during
norms 2006-07to norms 2006-07 to
2010-11 2010-11
I Dragline 85 78-85 73 66-78
2 Shovel 80 72-74 58 45-49
3 Dumper 67 66-67 50 35-37
4 Dozer 70 64-65 45 27
5 Drill 78 75-77 40 29-31
It would be seen from the above, the percentage of availability was generally below
the norms for all the five equipments and the percentage of utilisation was also below
the norms, except in the case of Dragline.
The Ministry stated (February 2012) that the matter pertaining to review ofCMPDIL
norms for availability and utilization would shortly be taken up with CMPDIL. The
Ministry further admitted (February 2012) that the utilisation of equipment was
affected mainly due to land acquisition problems resulting in shortage of working
space, law and order problems resulting in stoppage of work, difficult geo-mining
conditions - presence of faults, working on developed under ground pillars, which
makes operation slow and increase in breakdown, presence of active fire in working
faces, restricted blasting due to nearby habitants etc.
Delays in Execution of New Projects
In order to bridge the demand supply gap of coal, new coal projects are required to be
completed in a time bound manner. The Expert Committee emphasised (December
2005) the setting up of a permanent Special Task Force to monitor progress of
clearances and project implementation of all projects required to be completed by the
end of the XI Plan to fully realise CIL's production plans including the Emergency
Production Plan to enhance domestic coal production capacity. In the Action Taken
Note, MOC stated (January 2012) that response from the Ministry of Environment &
Forest is awaited
In fact, the compliance of recommendation of the Expert Committee is yet to be
effected as there had been instances of delays in implementation of projects.
Audit studied the delay in implementation of projects and impact thereof on
production of coal as on 31 March 2011. It was noticed that in 32 projects under
different subsidiaries of CIL, the delay in execution was ranging from 1 to 12 years
due to problems of land acquisition, forest clearance, adverse geo-mining condition,
tender finalization for equipment and construction of Coal Handling Plant ( CHP) &
railway siding, entailing loss of production by 115.95 million tonne.
Performance Audit
20 Allocation of Coal Blocks and Augmentation of Coal Production
Chapter
4
Allocation of Captive Coal Blocks
Captive coal mmmg is a mechanism envisaged to encourage private sector
participation in coal mining on account of the perceived limitations of the CIL to
increase production to meet the growing demand for coal. Captive coal mining would
also ensure assured supply of coal to the core infrastructure areas like Power, Steel
and Cement. Coal sector needs substantial investments to increase production and
meet the fuel requirements of a growing economy. With the declared objective for
"Power to all by 2012", the Government embarked on the task of allocating coal
blocks for captive mining for power and other sectors in a big way.
This chapter analyses the efforts of the Government in ensuring 'objectivity' and
'transparency' in the procedures adopted for allocation of captive coal blocks.
Allocation procedure for captive coal blocks
Till 1993, there were no specific criteria for allocation of coal blocks. Most of the
allocations were done based on letters of recommendation from the concerned State
Government indicating that the party was planning to set up a permitted end use
project of specified capacity. From 1993 onwards, MOC, in consultation with CIL/
CMPDIL and SCCL, identifies coal blocks, which can be allocated for captive mining
to the eligible coal using companies. The allocation of coal blocks is made by MOC
based on the recommendations of an Inter-Ministerial Screening Committee under the
chairmanship of Secretary (Coal) or through direct allocation. The latter is made for
PSEs only for captive use or commercial mining. Such allocation is termed as
Government Dispensation route while the allocation through Screening Committee is
termed as Captive Dispensation. Besides, blocks are allocated for UMPPs as per the
competitive bidding guidelines of the Ministry of Power (tariff based bidding).
The following are the criteria for selection by the Screening committee:
Captive blocks can be applied for additional requirements, of end-users
without affecting the linkages, which were in force with Coal India Limited (CIL)/
Singareni Collieries Company Limited (SCCL) ;
Allowing captive mining in Joint ventures with CIL/SCCL as lead partner ;
Allowing coal produced during the mine development phase to be sold to CIL
and/or SCCL at a transfer price to be determined by the Government;
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 21
Specifying the period for implementation of the mine plan duly backed by a
bank guarantee;
Specifying provisions for cancellation of the allocation for non-adherence to
milestones laid down for achieving various steps leading to coal production;
Providing for monitoring of the progress by the MOC and by the Coal
Controller.
Test check of file/ documents maintained by MOC in respect of Fatehpur and Rampia
& dip side of Rampia by audit in April, 2012 revealed that:
In case of Fatehpur coal block, 69 applications were received against the
advertisement for allocation of coal blocks. Out of these 69 applicants only 36
applicants were scheduled for making presentation before the Screening Committee.
The Screening Committee recommended S K S Ispat & Power Limited and Prakash
Industries Limited for allocation ofFatehpur coal block.
Similarly in case of R.ampia and dip side of R.ampia coal block, 108 ( 67 + 41)
applications were received against the advertisement for allocation of coal blocks. Out
of these 108 applicants only 2 applicants were scheduled for making presentation
before the Screening Committee. The Screening Committee, however, recommended
six companies (viz. Sterlite Energy Limited, GMR Energy Limited, Lanco Group
Limited, Navbharat Power Limited, Mittal Steel India Limited and Reliance Energy
Limited) for allocation of Rampia and Dip side of Rampia coal blocks.
It was also noted that the Screening Committee recommended the allocation of
coal block to a particular allottee I allottees out of all the applicants for that coal
block by way of minutes of the meeting of the Screening Committee. However,
there was nothing on record in the said minutes or in other documents on any
comparative evaluation of the applicants for a coal block which was relied upon
by the Screening Committee. Minutes of the Screening Committee did not
indicate how each one of the applicant for a particular coal block was evaluated.
Thus, a transparent method for allocation of coal blocks was not followed by the
Screening Committee.
Evolution of policy on competitive bidding of coal blocks
In the X Plan and thereafter, the number of applicants for coal blocks increased as
compared to the availability of blocks due to increased demand of coal in the country.
There was an urgent need to bring in a process of selection that was not only objective
but also demonstrably transparent. Allocation through competitive bidding was
considered as one such acceptable selection process. The concept of allotment
through competitive bidding was first made public by the Government on 28 June
2004. Further, sequence of events in this regard till 2012 is indicated below:
Performance Audit
22 Allocation of Coal Blocks and Augmentation of Coal Production
Date
28.06.2004
16.07.2004
30.07.2004
20.08.2004
11.09.2004
25.09.2004
04.10.2004
15.10.2004
Events on the issue of competitive bidding
The concept of allocation of captive coal blocks through competitive
bidding was first made public.
Comprehensive note on 'Competitive Bidding for allocation of coal
blocks' placed by then Secretary (Coal) to MoS (Coal and Mines),
mentioning that " ............ since there is a substantial difference between
price of coal supplied by Coal India and coal produced through captive
mining, there is a windfall gain to the person who is allotted a captive
block. ......... ". The note further indicated that " ............... the bidding
system will only tap part of the windfall profit for the public
purposes ......... ".
Secretary (Coal) mentioned that the present system of allocation in the
changed scenario, even with modifications would not be able to
achieve the objectives of transparency and objectivity in the allocation
process.
Minister (Coal and Mines) directed that a draft Cabinet Note be
prepared for placing the same before the Cabinet for consideration and
decision.
A note was initiated from the PMO detailing certain disadvantages of
allocation of coal blocks through competitive bidding.
In response, Secretary (Coal) submitted draft Cabinet Note to MoS
with the remarks that there was hardly any merit in the objections
raised. Different kinds of pulls and pressures experienced by the
Screening Committee during the decision-making process was also
highlighted. The note stressed on the desirability of taking decision in
respect of all pending applications on the basis of competitive bidding.
MoS stated that the proposal for competitive bidding may not be
pursued further as it would invite further delay in the allocation of
blocks, considering that the Coal Mines (Nationalisation) Amendment
Bill 2000 envisaging competitive bidding as a selection process for
allocation of blocks for commercial purposes was pending in the Raj ya
Sabha with stiff opposition from Trade Unions and others concerned.
MoS disagreed with the views that the Screening Committee could not
ensure transparent decision-making and added that this alone was not
an adequate ground for switching over to a new mechanism.
Secretary (Coal) stated that the policy of allotment of coal blocks
through competitive bidding was discussed in the PMO and it was felt
that since a number of applicants requested for allotment of blocks
based on the current policy, it would not be appropriate to change the
allotment policy through competitive bidding in respect of applications
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 23
01.11.2004
25.02.2005
07.03.2005
16.03.2005
24.03.2005
21.06.2005
Performance Audit
received on the basis of existing policy. Accordingly, the policy of
allotment through competitive bidding could be made prospective and
pending applications might be decided on the basis of the existing
policy. Therefore, the cut-off date for considering applications as per
the current policy and the proposed revised policy was taken as 28
June 2004.
The PMO directed Secretary (Coal) to amend the draft Cabinet Note
for approval of the Minister (Coal and Mines) after taking into
account the following:
the cut-off date for competitive bidding
the fact that the MOC had already moved the Coal Mines
(Nationalisation) Amendment Bill 2000 envisaging competitive
bidding as a selection process for allocation of coal blocks for
commercial purposes.
the change in the policy of allocation of coal blocks for
captive mining will be made effective prospectively.
The PMO stated. " ........ The change in the policy of allocation of coal
blocks for captive mining will be made effective prospectively.
Therefore, there is no urgency in the matter. Accordingly, there is no
need to bring in the required amendment in the Coal Mines
(Nationalisation) Act through an Ordinance. It would be appropriate to
bring in the required amendment through a Bill to be moved in the
coming Parliament Session ......... ".
On resubmission (23 December 2004) of the revised draft Cabinet
Note, Minister (Coal) opined that he was in complete agreement with
the views expressed by MoS in his note dated 04 October 2004 and as
such the proposal need not be proceeded further.
The Secretary (Coal) put up a note for approval of the Draft Cabinet
Note to the Minister (Coal) , stating that decision on all applications
received as on 28 June 2004 would have been taken by the end of
March 2005 and if the revised procedure for allocation of coal blocks
was not put in place quickly enough, pressures would again mount on
the Government for continuing with the present procedure, which
might not be desirable in the interests of bringing about total
transparency in allocation of coal blocks.
The PMO communicated that the draft Cabinet Note be updated and
sent back urgently.
The PMO communicated the approval of the updated draft Cabinet
Note by the Minister (Coal).
The draft Cabinet Note incorporating the views of various States and
24 Allocation of Coal Blocks and Augmentation of Coal Production
04.07.2005
25.07.2005
09.08.2005
12.01.2006
07.02.2006
16.03.2006
07.04.2006
comments of the Ministries and Departments with the observations of
the Minister of Coal was placed by the Secretary (Coal) before the
MoS for approval of the Minister (Coal), stating that it was desirable
that decision on allocation of captive block through bidding route was
taken at the earliest so that the process of allocation of coal blocks
could continue unhindered.
MoS in his note to the Minister (Coal), inter alia, stated that the
implications of such a decision by the Cabinet needed to be considered
in great detail and that there was a general reluctance on the part of
power utilities to participate in the competitive bidding due to cost
implications.
A meeting was taken by the PMO wherein it was decided that MOC
would amend the Cabinet Note to take into account the concerns of the
State Governments, where the coal blocks were located. The Coal
Mines (Nationalisation) Act, 1973 would need to be amended before
the proposed competitive bidding became operational. Since this was
likely to take considerable time, it was decided that MOC would
continue to allot coal blocks for captive mining through the extant
Screening Committee procedure till the new competitive bidding
procedure became operational. In the meeting, Secretary (Coal) stated
that " ....... the competitive bidding procedure will only tap part of the
windfall profit that accrued to the companies which were allocated
captive coal blocks under the Screening Committee procedure for
public purposes ...... ".
The PMO requested MOC to take urgent action as per the decisions
taken in the meeting held on 25 July 2005.
MoS stated that the PMO had taken a view to amend the Coal Mines
(Nationalisation) Act which was a time consuming exercise and as
such allowed the Department to proceed with the allocation of captive
coal blocks under the extant mechanism. MoS stated that " ...... several
applications were received in respect of coal and lignite blocks already
put on offer and which were under process and as such there was no
immediacy in the matter and that the Note be resubmitted at an
appropriate time keeping in view the issues involved ..... ".
Secretary (Coal) submitted a note to the Minister (Coal) through MoS,
stating that the PMO had been pressing for expeditious submission of
the Cabinet Note. The matter was seen by the Minister (Coal) on 07
March2006.
Secretary (Coal) approved the submission of the final note to the
Cabinet Secretariat.
A meeting was held in the PMO wherein it was generally felt that it
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 25
would be more appropriate to make an amendment in the Mines and
Minerals (Development and Regulation) Act, (MMDR Act) 1957 so
that the system of competitive bidding could be made applicable to all
minerals covered under the said Act.
20.04.2006 Secretary (Coal) approved a draft note to the Ministry of Mines with a
request to obtain the comments of the Department of Legal Affairs on
the legal feasibility of the proposed amendment to the MMDR Act,
1957 to address competitive bidding.
27.04.2006 MoS opined that the issue to amend the MMDR Act should be
revisited as it involved withdrawing the current powers of the State
Governments and it had the potential to become a controversial issue.
Minister of Coal stated that the views expressed by the MoS were
appropriate and MOC should refrain from making suggestions which
had implications for federal polity.
02.05.2006 The advice of the Minister (Coal) was sent to the Ministry of Mines to
suggest appropriate modifications in the tentative draft. The draft with
the suggestions of the Ministry of Mines was referred to the Ministry
of Law and Justice, Department of Legal Affairs for their views on the
legal feasibility of the proposed amendment.
15.09.2006 MOC communicated to the PMO and the Cabinet Secretariat that the
Ministry of Law and Justice has advised MOC to initiate suitable
measures for amendment of the MMDR Act, 1957 for addressing the
Competitive Bidding.
17.10.2008 A Bill to amend the MMDR Act, 1957 was introduced in the
Parliament by the Ministry of Mines.
31.10.2008 The Amendment Bill was referred to the Standing Committee on Coal
and Steel for examination and report.
19.02.2009 The Standing Committee submitted its report to the Parliament and
made certain recommendations.
10.08.2009 MoS held a meeting with the State Ministers of Mining and Geology
of coal and lignite bearing States.
18.02.2010 The Minister (Mines) moved the motion for passage of the MMDR
Amendment Bill, 2008 in the Budget Session of Parliament (2010)
after the Cabinet approved (28 January 2010) the Cabinet Note.
09.09.2010 The MMDR Amendment Act, 2010 was notified in the Gazette of
India (Extraordinary) after the same was passed by both the Houses of
the Parliament in the Monsoon Session (26 July 2010 to 31 August
2010).
Performance Audit
26 Allocation of Coal Blocks and Augmentation of Coal Production
22.09.2010 The Secretary (Coal) chaired a meeting with the representatives of the
Ministries of Power, Mines, Petroleum and Natural Gas, Steel,
Department of Industrial Policy and Promotion and the Planning
Commission to discuss various issues on finalisation of the modalities
for competitive bidding as the selection process for allocation of coal
and lignite blocks.
31.01.2011 Draft bid documents were discussed in the meeting of the Committee.
25.07.2011 A meeting with the stakeholders was convened by the Minister (Coal)
to have further discussions on competitive bidding.
02.02.2012 Amendment in the MMDR Act, rules for auctions by competitive
bidding of coal mines were notified.
In the above perspective the following audit observations emerge.
The Government decided to bring in transparency and objectivity in the
allocation process of coal blocks, with 28 June 2004 taken as the cut-off date. This
process kept getting delayed at various stages. Even after a lapse of seven years, the
same is yet to materialize (February 2012). As per the note of the Secretary (Coal),
steps could have been taken to allocate coal blocks through competitive bidding as of
September 2004. The revised procedure needed to be in place at the earliest so that the
next round of allotment of captive coal blocks, after the cut- off date was through
competitive bidding.
MOC referred the matter of introduction of competitive bidding process for
allocation of coal blocks to the Department of Legal Affairs (DLA) in June 2004 for
seeking an opinion whether coal blocks could be allocated through auction/
competitive bidding route by making rules under the Coal Mines (Nationalisation)
Act, 1973 (CMN Act) read with Mines and Minerals (Regulation and Development)
Act (MMDR Act), 1957 and Mineral Concession Rules, 1960. After a series of
correspondences and after two years DLA stated (28 July 2006) that it was open to the
government to introduce the auctioning of coal mining blocks for captive use through
competitive bidding as the selection process for allocation was possible by amending
the existing administrative instructions and such a process could be governed by the
provisions of the Indian Contract Act, 1872. Thus, competitive bidding could have
been introduced in 2006 (as per the advice of DLA in July 2006). DLA also stated
that the course which was to be adopted in the instant case, i.e., to amend the Act or to
effect changes in the administrative instructions, was a matter of policy to be decided
by the referring Ministry. The same opinion was reiterated by the Law Secretary in
August 2006 also.
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 27
Despite such clear advice, MOC went ahead for allocation of coal blocks
through Screening Committee and advertised in September 2006 for allocation
of 38 coal blocks and continued with this process till 2009.
Notwithstanding the clear advice of DLA (28 July 2006) that MOC might
introduce the auctioning of coal mining blocks for captive use through competitive
bidding as the selection process for allocation by amending the existing administrative
instructions, there was prolonged legal examination of the issue which delayed the
decision making process to move ahead with competitive bidding for allocation of
coal blocks.
As of June 2004, 39 coal blocks (net) stood allocated. During the period
from July 2004 to September 2006 (till the time the matter was referred to the
Ministry of Mines for taking action on the issue of amendment of MMDR Act for
introduction of competitive bidding), 71 more blocks (net) were allocated. In all,
since July 2004, 142
11
coal blocks (net) were allocated to various Governments
and private parties following the existing process of allocation which lacked
transparency, objectivity and competition. The position is shown in table below:
OC/MixedMines UGMines Total
Allottees
No. of
GRin
No. of
GRin
No. of
GRin
blocks
million
blocks
million
blocks
million
tonne tonne tonne
Govt. 49 19014.075 18 3435.967 67 22450.04
Pvt. 57 12105.181 18 2417.747 75 14522.93
Total 106 31119.256 36 5853.714 142 36972.97
While admitting the above facts, the Ministry stated in March 2012 that the view
that the system of bidding could be introduced through administrative instructions
was given by the Ministry of Law and Justice (MoLJ) on 28 July 2006 for the first
time and in the light of the conflicting opinions, a reference was again made. MoLJ
in its opinion dared 30 August 2006 after clarifying rationale for earlier opinion,
finally opined that the administrative ministry may initiate measures for
amendment in the MMDR Act. Pending amendment in the Act, it proceeded to
allocare coal blocks on the advice of the ECC of July 2006. Finally with the
amendment in the MMDR Act, rules for auctions by competitive bidding of coal
mines were notified on 2 February 2012 after inter ministerial consultations.
11
0111of216 blocks (PfllVl 5.1) llllocllled, 22 blocks (net) were de-ldloctlled, 39 blocka were allocated prior to
JMM 2004, 12 blocks were allocated to UMPP and one block pertaim to SCCL.
Performance Audit
28 Allocation of Coal Blocks and Augmentation of Coal Production
Audit is not in agreement with the Ministry's contention as MoLJ had categorically
mentioned on 28 July 2006 itself that the competitive route could be adopted through
administrative arrangements. In fact, it was left to the MOC to take action for
introduction of competitive bidding through administrative instructions. Amendment
in the Act was advised by MoLJ (August 2006) on the request of the MOC that the
process may be given legal footing.
4.3 Financial gains to the private parties
Delay in introduction of process of competitive bidding has rendered the existing
process beneficial to a large number of private companies as had been observed by the
then Secretary (Coal) in July 2004 itself.
Audit has attempted to estimate the financial impact of the benefit to the coal blocks
allottees restricting itself to private parties. Briefly, the methodology adopted for
estimating the benefit passed on to the allottees is as under:
Captive coal blocks allocated to private parties can be mined either as
Opencast (OC) mines, Underground (UG) mines or Mixed mines (i.e. partly as
Opencast and partly as Underground).
Out of 75 private allottees, 57 allottees were allotted blocks with OC/ Mixed
mines. The financial impact of the benefit to the private allottees has been estimated
confining to Open Cast (OC)/ OC reserve of Mixed mines only.
Underground mines are mostly loss making as per available data regarding
average cost of production from CIL's underground mines. However, underground
mines are rich with superior grades of coal and private allottees may have an
advantage over the cost of production by introducing new mining technology etc. In
absence of reliable data regarding operating cost of UG mines by private parties, the
UG mines have been excluded from the computation of financial benefit.
In case of joint ventures of PSU s with the private parties, the allottee has been
considered as Government parties and not included in the calculation of benefit.
12 coal blocks (GR: 4,846.26 million tonne) allocated for UMPPs were not
considered as the same were allocated on the basis of tariff based bidding, where the
coal blocks were included in the bids.
Geological Reserve (GR) figure for each coal block has been taken from Mine
Plans (MP) where available. In other cases figures available from the Status Report
prepared by Coal Controller's Organisation or website of MOC have been considered.
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 29
Where MP is available, the Extractable Reserve (ER) has been taken from MP.
Where MPs are not available, the ER has been considered at 73 per cent
12
of GR in
cases of QC blocks based on the Expert Committee Report on Road Map for Coal
Sector Reforms (Chaired by Shri T.L. Sankar). The MOC had also stated that
Mineable Reserve (MR) for QC would range between 7 5 and 80 per cent of GR. Thus
the audit norm is conservative.
In Mixed mines, where MPs were not available, the OC extractable reserve
has been considered at 37 per cent
13
of GR on conservative basis.
Average per tonne cost of production of all grades of coal produced in open
cast mines of CIL and its subsidiaries pertaining to the year 2010-11 as per Final Cost
Sheet have been considered.
Sale price has been taken on average basis of all grades of coal produced in
QC mines of CIL for the year 2010-11 as per Final Cost Sheet.
As per MOC, the Financing Cost ranges from t 100 to t 150 per tonne over
and above CIL's cost of extraction. Therefore, an additional financing cost of t 150
per tonne has been considered.
Total extractable reserve of a coal block could be extracted over the lifetime of
a block as per its mining plan. In the absence of future year wise quantity of coal
extracted, sale price, cost price, financing cost etc pertaining to a coal block over its
lifetime, Audit has taken the currently available audited figures (sale price, cost price,
financing cost) of Coal India Limited (since CIL accounts for majority of coal
production in the country) as reference values in order to arrive at financial gain to
allottees on indicative basis.
Based on the above method, financial gain of t 185,591.34 crore to private parties in
respect of 57 OC /Mixed mines as on 31 March, 2011 has been calculated by audit
and summarized in the table below:
u Working of 13 per cent: Let, Gross GR = JOO MT, Net GR = 90 MT (Gross GR - l" of Gross GR},
MR= 81 MT (Net GR -10" of Net GR). The Extraction or Recovery Ratio of MR in OC mines = 72.9
MT, soy 73 MT (90" of 81 MT}. As per the Expert Committee, the Extraction or Recovery ratio is as
high as 90-95" af mineable reserve in OC mines
.u 31" has been worked out based on the average quantity of Extractable OC reserves of Mixed
mines where Mine Plans were a11ailable.
Performance Audit
30 Allocation of Coal Blocks and Augmentation of Coal Production
Particulars Extractable Average Average Financing Net Gain Financial
Re1erve1of Sale Price Cost Price Co1ta11
('per Benefit('
oc of all of all stated by tonne) in Crore)
(Figure in grades of grades of MOC('
million CILOC err. oc per
tonne) Mines for Mine11for tonne)
2010-11 <' 2010-11 <'
per tonne) per tonne)
Opencast Mines
allocated to
Private Parties
(Annexure-111) 3,969.890 1028.42 583.01 150 295.41 117,274.52
Mixed Mines
allocated to
Private Parties
where Mining
Plans are
available
(Annuure-IV) 1,010.575 1028.42 583.01 150 295.41 29,853.40
Mixed Mines
allocated to
Private Parties
where Mining
Plans are not
available
(Annexure-V) 1,302.035 1028.42 583.01 150 295.41 38,463.42
Total 6,282.500 185,591.34
A part of this financial gain could have been tapped by the Government by taking
timely decision on competitive bidding for allocation of coal blocks.
The Ministry stated (February and March 2012) that:
The inference that the Government wanted to tap a part of it through
competitive bidding appeared to be based on incomplete appreciation of the
circumstances prevailing then and sequence of events thereafter;
The coal produced from captive blocks was not available for commercial sale.
Further 17 coal blocks were allotted to power sector where tariff is regulated on the
basis of input costs and the transfer price of coal is assessed on actual cost basis;
In the case of steel and cement sector, though prices of end products are not
regulated but a competitive market ensures the best benefit for the consumers;
Allocation through screening committee route was in vogue for 15 years and
allocation was not looked as potential source of revenue for central government but
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 31
with the intent to induce rapid development of infrastructure. There would not be any
gain to allottees as CIL was not in a position to supply additional coal to the allottees.
The contention of the Ministry is not acceptable to Audit in view of the following:
:> In the meeting held in the PMO on 25 July 2005 to discuss competitive
bidding as a selection method for allocation of coal and lignite blocks for captive
mining, it was observed that the rational method would ensure that the cost of coal
through the competitive bidding route is less than that of coal sourced from CIL or
imports. Secretary (Coal) had then stated that the competitive bidding procedure
will only tap part of the profit that accrued to the companies which were
allocated captive coal blocks under the screening committee procedure for public
purposes. It was further deliberated in the said meeting that CIL and SCCL should
address the national concerns of energy security. While private captive blocks would
be available to the allottees for their own needs alone they would not require to carry
a huge cost of social overheads and excessive manpower like that of CIL or SCCL. It
was thus clear that MOC itself had acknowledged that there was gain to the allottees
of coal blocks.
> Most importantly, the contention of MOC in 2004-2006 when it was making
attempts to introduce transparency/ competition in allocation of coal blocks was
exactly along the lines of the conclusions of audit. The Hon'ble Supreme Court, in the
judgement on 2G spectrum, has also directed to introduce transparency/competition in
allocation of scarce natural resources.
Therefore, audit is of the strong opinion that there is a need for strict regulatory and
monitoring mechanism to ensure that the benefit of cheaper coal is passed on to the
consumers.
Performance Audit
32 Allocation of Coal Blocks and Augmentation of Coal Production
Chapter
5
Production Performance of
Captive Coal Blocks
The production performance of captive coal blocks is crucial for narrowing the gap
between domestic demand and supply of coal which is the prime source of energy of
the nation.
This chapter analyses the production performance of coal blocks during XI plan
period and steps taken by the MOC for facilitating the production from captive coal
blocks. The monitoring mechanism put in place to address various bottlenecks which
are hindering the desired production of coal from the captive coal blocks and the
system of 'incentives' and 'disincentives' adopted to ensure performance by these
coal blocks are also analysed.
Allocation of captive coal blocks during the XI Plan
The year-wise allocation of captive coal blocks to the Government companies, private
companies and Ultra Mega Power Projects (UMPPs) as on 31 March 2011 is given in
table below.
Year-wise allocation of coal blocks for captive mining
Year of Govt. Companiea Private Companiea Ultra Mega Power Total
allocation Projects
No.of GR(in No.of GR(in No.of GR(in No.of GR(in
Blocks million Blocks million Blocks million Blocks million
tonne) tonne) tonne) tonne)
1993
to 29 6294.72 41 3336.88 0 0 70 9631.60
2005
2006 32 12363.15 15 3793.14 6 1635.24 53 17791.53
2007 34 8779.08 17 2111.14 1 972 52 11862.22
2008 3 509.99 20 2939.53 1 100 24 3549.52
2009 1 337 12 5216.53 3 1339.02 16 6892.55
2010 1 800.00 1 800.00
Total 99 28283.94 105 17397.22 12 4846.26 216 50527.42
(GR- Geological Reserves)
Out of the above 216 blocks, 24 blocks were de-allocated (three blocks in 2003, two
blocks in 2006, one block in 2008, one block in 2009, three blocks in 2010 and 14
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 33
blocks in 2011) for non-performance of production by the allottees
14
and two de-
allocated blocks were subsequently re-allocated (2003 and 2005) to others.
Hence, 194 coal blocks, with aggregate geological reserves of 44,440 million tonne,
stood allocated as of 31 March 2011.
5.2 Production from Captive Coal Blocks during the XI Plan
The production of coal from the coal blocks allocated for captive numng was
expected to play a significant role in meeting the demand for coal in the country.
The year-wise targets and achievements in respect of 86 captive coal blocks which
were expected to produce in the XI Plan period are given in Charts.
No. of Captive Coal Blocks scheduled for Production from CapUve Coal Blocks
production
=
10
..
..
r::::
80
...
10
...
70
70
ii'
80
.. 60
"' c
c
~
c
c
B
50
.a 50
c
c
0
~ 40
i
40
'E
c 30 .. 30
:::.
20 20
10 10
0
0
2(1C17-G8 2008-GI 2009-10 201011
2007-GI 2008-09 200910 2010-11
I Target Actual I I Target Actual I
It would be seen from the above that out of 86 coal blocks with targeted coal
production of 73.00 million tonne which were scheduled to produce in the XI Plan
period (upto 2010-11), only 28 blocks (including 15 blocks allocated to private sector)
started production as of 31 March 2011. They produced only 34.64 million tonne of
coal during 2010-11. This resulted in a shortfall of 38.36 million tonne (52.55 per
cent) of coal production from the captive coal blocks.
The Ministry stated (February 2012) that development of coal blocks involves a
gestation period of three to seven years for reaching the production stage and
allottees who had not started production so far, were in various stages of obtaining
statutory clearances and mining lease. In case of wilfal delays appropriate action was
14
Term used for a party to whom a coal block has been allocated for captive mining
Performance Audit
34 Allocation of Coal Blocks and Augmentation of Coal Production
taken to de-allocate the blocks and so far 25 coal blocks had been de-allocated. The
Ministry further added (March 2012) that 24 months given for exploration and six
months for forest clearance envisaged earlier were not found adequate and that the
average time taken by CIL for getting forest and environment clearance was more
than four years. The peiformance of allocated captive coal blocks was reviewed in
January 2012 and a series of steps had been contemplated to ensure that intended
benefits from private captive coal blocks do get realized in the quickest possible time.
The scheduled production plans of blocks were formulated after considering the time
required for pre-production clearances and activities. A shortfall of 52.55 per cent in
the production targets reflects the objective of enhancing production through
allocation of captive coal blocks remained unachieved.
5.3 Coal blocks allocated without tying up exploration and development
In order to ensure that the coal blocks are allocated in an informed manner and that
there are no hurdles to their commencement of production, basic issues related to
exploration and development should have been tied up in advance. The approval of
Mining Plan is a pre-requisite for implementation of the coal mining project. MOC
decided {October 2003) that no allocation of a captive block would be done unless the
block was explored to facilitate assessment of ER and preparation of a Mining Plan.
This would help the Screening Committee to take decisions on allocation of coal
blocks in a more informed and accurate manner. Audit, however, observed as under:
Out of 194 blocks allocated by MOC for captive mining till 31March2011,
only 142 were explored blocks (GR: 23391 million tonne) and the balance 52 were
either regionally explored or were unexplored coal blocks (GR: 21049 million tonne),
which required further exploration for preparation of Mining Plan;
The Geographical Coordinates System, practised internationally, expresses
coordinates of a block in terms of longitudes and latitudes. The earlier blocks which
were identified for the captive list, were either surveyed by CMPDIL in local
rectangular grids with assumed values or were not surveyed by CMPDIL and these
blocks were only regionally explored by GSI/MECL. Hence, precise coordinates i.e.
longitudes and latitudes for the blocks were not available with MOC at the time of
allocation. This could delay production on account of demarcation disputes, such
delays occurred in Gare N/6 Block (Jindal Steel and Power Limited and Nalwa
Sponge Iron Limited jointly), Gare N/7 Block (Raipur Alloys) and Ramchandi Block
(Jindal Steel and Power Limited);
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 35
There were disputes due to overlapping of coal blocks with Coal-Bed Methane
(CBM)
15
blocks. Biharinath Block was allocated (February 2007) for captive coal
miiring to Bankura DRI Mining Manufacturing Private Limited and the same was also
allocated to GEECL
16
by the Ministry of Petroleum and Natural Gas for CBM
extraction. Though a co-development plan was worked out, GEECL obtained a stay
order from the Hon'ble Delhi High Court restricting the coal allottees from the
development of the coal block. Similarly, in the case of Patal East Block (allocated in
November 2007) to Bhushan Power & Steel Ltd. and Moira Madhujore Block
(allocated in October 2009) to Ramswarup Lohh Udyog Ltd. there were overlapping
of coal blocks with CBM blocks. This adversely affected the development of these
coal blocks.
The Ministry stated (February 2012) that exploration takes a fairly long time and it
would not be possible to consider allocation of only explored blocks due to their
limited availability. Meetings of all the stake holders were held to resolve the disputes
in consultation with CMPDIL and concerned coal company.
Audit is not in agreement with the reply of the Ministry as the system of firming of
the reserves to provide data to the Screening Committee for allocation of coal blocks
in an informed and rational manner was not followed. This was also observed by
Expert Committee that only explored blocks were to be offered to the allottees.
Excess allocation of coal
There is a possibility of production of surplus coal from the captive coal blocks, if the
coal production materializes before the commissioning of the End-Use Project (EUP)
or if the coal production outpaces requirement in EUP.
Audit observations in respect of Sasan UMPP have been discussed in other CAG's
Audit Report on 'Ultra Mega Power Projects under the Special Purpose Vehicles' for
the year ended March 2012.
Delays in Commencement of Production and reasons thereof
As per the guidelines of MOC, the allocated captive blocks should commence
production within 36 months ( 42 months for forest land) in case of open cast mines
and 48 months ( 54 months for forest land) for underground mines from the date of
issue of letter of allocation. Besides, additional two years is allowed for
commencement of production for unexplored and regionally explored captive blocks.
is Cool bed methane is a form of natural gas extracted from coal beds
l
5
Great Eastern Energy Corporation Limited
Performance Audit
36 Allocation of Coal Blocks and Augmentation of Coal Production
It was seen in Audit that out of 28 producing blocks as on 30 June 2011, there was
time overrun ranging from one to ten years from the normative production schedules
in thirteen blocks.
Similarly, out of 68 non-producing blocks where normative date of production was
due by 30 June 2011, there was time overrun ranging from one to five years in 4 7
blocks and more than five to ten years in 4 blocks from the normative production
schedule.
Audit analyzed the factors responsible for delays in respect of these 68 coal blocks
and found that it was largely on account of delays in land acquisition (LA), forest
clearance (FC), Mining Lease (ML), Mining Plan (MP) and Environment
Management Plan (EMP).
Audit also noted that out of above 68 blocks, different milestones were awaited e.g.
FC in 53 blocks, LA in 62 blocks, ML in 58 blocks, MP in 4 blocks and EMP in 26
blocks were pending as on 30 June 2011. There was lack of coordinated approach by
the State Governments and the Central Government towards commissioning of end-
use projects and the commencement of production from the coal blocks. The
abnormal time taken for obtaining mining leases, surface rights, land acquisition,
resettlement/ rehabilitation, environmental clearances from the Central and State
Governments have severely hindered the commencement of production from captive
coal blocks. Some states have adopted a single window system for grant of various
approvals though progress in this regard is slow.
The Ministry stated (February 2012) that review meetings were held to evaluate the
development of allocated coal blocks in which the representatives of the State
governments and Central Ministries also participate and were requested to expedite
all clearances.
In this connection, it is noted that the Expert Committee (2005) had also observed that
major delays occur in most cases in obtaining environmental clearance, approval for
land, mining leases from the concerned State Governments and the subsequent land
acquisition process. The Committee had suggested that MOC should take a proactive
role in monitoring the approvals and clearance by the State authorities. It was,
therefore, recommended that an empowered High Powered Committee chaired by
Secretary (Coal) be constituted with the members from the nodal Ministries e.g.
MoEF, Mine, etc. and the State Governments with a view to monitor and review the
progress of clearances and approvals necessary to expedite commencement of
production. There is a need to constitute an empowered group along the lines of
Foreign Investment Promotion Board (FIPB) to grant the necessary licenses for
accelerating the procedures for commencement of production.
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 3 7
5.6 Inadequate monitoring by CCO
Since 1993, MOC has been monitoring the production of coal blocks. In January
2005, the Coal Controller's Organisation (CCO} was made the nodal agency for the
purpose. MOC constituted (October 2009) a Committee under the chairmanship of the
Additional Secretary (Monitoring Committee) to monitor the development of
allocated coal blocks/end use projects.
The responsibility of developing the coal block as per the prescribed guidelines and
milestones of allocation letter rests entirely with the allottees and in the event of
wilful delay in the development of coal blocks/setting up of the end use project, the
Government reserves the right to take appropriate action to de-allocate the said block.
The Government in line with this, periodically monitors and reviews the development
of coal blocks in the review meetings. Wherever delays are noticed, show-cause
notices and advisories are issued to such allottees cautioning them to bring the coal
blocks into production as per the guidelines/milestones chart failing which de-
allocation of the block is done. CCO prepares a quarterly status report on
development of coal blocks and associated end-use projects, on the basis of
information furnished by the block allottees, which is placed before the Monitoring
Committee for review and for recommending suitable remedial action.
Audit observed that:
As per MMDR Act, 1957, the Coal Controller with a view to ensuring
compliance of rules, may enter and inspect any colliery. However, CCO did not
conduct any physical inspection of allocated coal blocks to ascertain the actual
progress/production vis-a-vis the progress/production reported by the allottees. The
correctness of the data furnished by the allottees, therefore, could not be vouched for.
CCO did not have adequate sanctioned strength or men-in position for
effective monitoring of coal blocks. It was noticed that the process of creation of 17
technical posts proposed by the CCO in 2007 was still under consideration of the
MOC (November 2011);
MOC directed (July 2010) that the nine blocks which had achieved the peak
rated capacity would not be reviewed further at MOC, but their progress would be
monitored by CCO. CCO, however, failed to comply with these directives of MOC
(November 2011}; and
The Monitoring Committee was to review the progress of allocated coal
blocks every month. The same was, however, not strictly followed and the meetings
were held on quarterly basis.
It was further noted that MOC issued show cause notices and de-allocated 24 blocks
upto June 2011 for lack of initiative for development of coal blocks by the allottees.
Performance Audit
3 8 Allocation of Coal Blocks and Augmentation of Coal Production
The proposed competitive bidding procedure was intended to increase financial stakes
of the allottees in the allocated blocks to bring the required sense of urgency in
developing the blocks/end use projects, but that is yet to commence. There is also the
issue of diversion of coal produced from the captive coal blocks to the black market.
In such a scenario, effective monitoring is required to ensure development of coal
block as per the prescribed milestones as also to keep a watch on the use of produced
coal.
The Ministry accepted (February 2012) that there was a need to strengthen the CCO,
Kolkata and stated that a proposal for creation of additional posts was under
consideration.
5. 7 N on-encashment of bank guarantees in case of default
MOC introduced (March 2005) the system of bank guarantee (BG) to ensure timely
production from the coal blocks. The Expert Committee on Road Map for Coal Sector
Reforms (December 2005) recommended for submission of BG, 50 per cent of which
linked to guaranteed production and 50 per cent to setting up of end use projects.
MOC modified (January 2007) the system of BG and linked 50 per cent of BG
amount with the milestones to be achieved before the start of production and balance
50 per cent of BG with guaranteed production. The furnishing of BG was also made
applicable (July 2007) for the coal blocks allocated to Government Companies under
the Government Dispensation. Since October 2009, the Monitoring Committee was to
assess and recommend deduction of BG for encashment in case of laxity in
development of coal blocks or end use plants as per the terms and conditions of the
allocation letters/milestone timelines.
The Expert Committee has also recommended for legal measures to cancel licenses
issued earlier if the allottee failed to take adequate steps to bring the allotted mines to
production or in setting up of end use plants.
In this connection Audit observed as follows:
There was delay in introducing BG and linking it with the milestones. As a
result, the furnishing of BG by the MOC could not be made applicable to 46 blocks
allocated prior to 2005. Further, achievement of milestones in respect of 118 blocks
allotted prior to July 2007 was not linked with the BG and hence imposition of
penalty for non-compliance of milestones could not be implemented;
CCO/MOC could not collect BG from five blocks viz, Pindrakhi, Puta
Parogia, Mourya, Bhivkund and Bankui, as per the terms and conditions of allocation,
allocated during July 2008 and June 2010 (as of 15 August 2011). This included BG
amounting to 24 7 .98 crore in respect of Bhivkund, Bankui and Mourya Blocks;
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 39
As per the terms and conditions of allotment of coal blocks, the BG amount
would be modified based on the final peak rated capacity of the mine. However, the
same is yet to be done (November 2011);
There was also no methodology for accounting of BG. No proper head of
account was earmarked for deposit of encashed BG. As a result, MOC/CCO could not
encash BG amounting to U2.94 crore against six blocks 0.59 crore,
Punukula Chilak:a: t 0.80 crore, Pengedappa: t 7.50 crore, Mandia South: t 1.14
crore, Semaria/Piparia: t 0.91 crore and Ravanwara North: t 2.00 crore);
MOC de-allocated 24 blocks upto June 2011 for lack of initiative for
development of coal blocks by the allottees. The Monitoring Committee also
recommended (January and February 2011) for deduction of BG from 15 allottees for
delay in development of coal blocks. However, MOC could not encash the BG
wherever applicable from these allottees as the modalities for such encashment was
still to be worked out (November 2011). The Expert Committee also recommended
for encashment of BG in full in such cases ; and
As of November 2011, lapsed BG worked out by audit was t 311.81 crore
against 15 blocks which needed to be renewed.
The Ministry accepted (February 2012) that there were no guidelines in place for
calculation of the amount for encashment of bank guarantee and added that the same
were under consideration.
Framework for augmentation of coal production
Audit analysis of the extant framework for allocation of coal blocks revealed the
following:
(i) Government of India does not charge any money for allocation of coal blocks
for captive mining except the cost of exploration. The allottee has to pay mainly
royalty to the State Government. Thus, the difference between the market price of the
coal and the cost of production is a direct/incentive gain to the allottee ; and
(ii) In case of delayed production of coal, the allottee is under the risk of
deallocation of the coal block or penal action by the MOC viz., encashment of part or
full bank guarantee besides depriving of the benefits of the coal production.
Thus, there is a scope for improvement in the system to facilitate augmentation of
coal production to meet the demand of coal by the following:
(i) Speedy approval like mining lease, mining plan, forest clearance and
environmental management plan from the various Ministries/Departments as also land
Performance Audit
40 Allocation of Coal Blocks and Augmentation of Coal Production
acquisition from the concerned State Government through the mechanism of the High
Powered Committee recommended in para 5.5 above;
(ii) There should be incentives for timely production of coal, even in cases of
production prior to commencement of the end use plant as also for production of
surplus coal more than the requirement for the end use project. A well laid down
policy for reasonable return over the cost of production, including support for
speedier creation of infrastructural facilities is required;
(iii) In case of unjustified delays by the allottees, timely penal action (including
de-allocation of blocks) for non/ poor performance needs to be enforced; and
(iv) Amount of the bank guarantee needs to be enhanced to increase the stake of
the allottee to restrict/ penalise non-serious players.
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 41
Chapter
6
Conclusion and Recommendations
Conclusion
The production of coal has assumed greater significance after the Government
of India announced its mission "Power to all by 2012". Coal being the most
important indigenous energy source with GR of 2,85,863 million tonne in India, the
roles of various agencies involved in exploration, production and allocation of coal
has, thus, increased correspondingly. Performance Audit on allocation of coal blocks
and augmentation of coal production, however, revealed the following inadequacies/
shortcomings:
In order to increase the coal production in the country, the Expert Committee
on Coal Sector Reforms in December 2005, had recommended enhancing the
per annum drilling capacity of CMPDIL at least to 15 lakh metre per annum.
Against the recommendation, the CMPDIL is expected to achieve a drilling
capacity of 3.44 lak.h metre per annum;
CIL also, could not match with the rate of increase in coal production
envisaged by the Planning Commission as there were delays in execution of
various capacity addition projects due to lack of coordinated and planned
approach by various government agencies involved in statutory clearances and
land acquisition. Further, there were mismatches in excavation and
transportation capacities of mines and the Heavy Earth Moving Machinery
engaged in production of coal was not being utilised optimally and gainfully;
New Coal Distribution Policy notified by MOC 2007 envisages distribution of
coal to small and medium consumers in effective manner. However, no
monitoring mechanism is in place in CIL for verification of end use of coal;
The existing washeries of CIL were not able to cater the washed coal
requirements of the country and hence consumers had to depend on private
washeries;
With a view to increase supply of coal in the Country, the MOC de-reserved
48 coal blocks of CIL, out of which, three coal blocks were de-allocatted later
and nine blocks remained un-allocated. Out of remaining 36 coal blocks
allocated to various parties, in nine blocks production is yet to commence even
though normative production date is over. In balance 27 blocks, normative
production schedules were beyond July 2011. Thus, the de-reservation of CIL
blocks did not yield desired results;
Captive coal mining is a mechanism envisaged to encourage private sector
participation in coal mining on account of the limitations of the CIL to
increase production to meet the growing demand for coal besides to ensure
assured supply of coal to the core infrastructure sectors viz. Power, Steel and
Cement. Till 1993, there were no specific criteria for allocation of coal blocks.
Most of the allocations were done based on letters of recommendation from
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 43
the concerned State Government. The process of bringing in transparency and
objectivity in the allocation process of coal blocks, which commenced from 28
June 2004, got delayed at various stages and the same is yet to materialize
(February 2012) even after a lapse of seven years. In the mean time, 194 net coal
blocks with aggregate GR of 44,440 million tonne were allocated to different
Government and private parties up to 31 March 2011. The financial impact of
the benefit to the private allottees has been estimated to the tune of
f 1,85,591.34 crore as on 31 March, 2011 for Opencast (OC) mines/ OC
reserves of Mixed mines. The Government could have tapped a part of this
financial benefit by expediting decision on competitive bidding for allocation
of coal blocks ;
Out of 28 producing blocks as on 30 June 2011, in case of ten blocks, there
was time overrun ranging from one to ten years from the normative production
schedules. In case of 68 non-producing blocks where normative date of
production was on or before 30 June 2011, there was time overrun ranging
from one to five years in 4 7 blocks and more than five to ten years in four
blocks from the normative production schedules. There were abnonnal delays
in commencement of production from captive coal blocks too due to delay in
obtaining mining leases and other statutory clearances as pointed out earlier ;
The Coal Controller's Organisation, a nodal agency for this purpose, did not
conduct any physical inspection of allocated coal blocks to ascertain the actual
progress/production vis-a-vis the progress/production reported by the allottees
as per the MMDR Act, 1957. The correctness of the data furnished by the
allottees, therefore, remained unverified; and
To ensure timely production from the coal blocks MOC introduced the system
of bank guarantee (BG) only in March 2005 which was modified in January
2007 and linked to 50 per cent of BG amount with the milestones to be
achieved before the start of production and balance 50 per cent with
guaranteed production. Audit observed that there was delay in introducing BG
and linking it with the milestones. Resultantly, in case of 46 coal blocks
allocated prior to 2005, the furnishing of BG could not be made applicable and
in case of 118 blocks allotted prior to July 2007 imposition of penalty for non-
compliance of milestones could not be implemented. Further, in the absence of
any methodology for accounting of BG, MOC could not encash BG
amounting to f 12.94 crore against six blocks. Audit also noticed that as of
November 2011, the BGs amounting to f 311.81 crore in respect of 15 blocks
had lapsed and were not renewed.
Recommendations
MOC should
> In order to bring 'objectivity' and 'transparency' in the allocation and for
tapping of a part of benefit accruing to the allottees of captive coal blocks,
MOC should urgently work out the modalities to implement the procedure of
allocation of coal blocks for captive mining through competitive bidding.
Performance Audit
44 Allocation of Coal Blocks and Augmentation of Coal Production
> With the declared objective of "Power to all by 2012", Government has taken
many steps inter-alia allocating coal blocks for captive mining for power and
other sectors in a big way. It would be worthwhile to make an assessment of
the level of success of this declared objectives so as to make mid course
corrections. The need for power in the economic development of the country
will continue to be paramount. Hence, the criticality of such an assessment and
further road map to advance the objective of "Power to all". There is a need to
constitute an empowered group along the lines of Foreign Investment
Promotion Board (FIPB) as a single window mechanism with representatives
of Central nodal ministries and State Governments to grant the necessary
clearances such as mining lease, mining plan, forest clearance, environment
management plan and land acquisition for accelerating the procedures for
commencement of production.
> Evolve a system of giving 'incentives' to encourage production performance
from captive coal blocks and 'disincentives' to discourage non/poor
performance.
CCOshould
> Conduct physical inspection of allotted blocks on regular basis.
CIL should
> Fix its production targets in line with the targets fixed by the Planning
Commission.
Expedite setting up of coal washeries as washing capacities of coal are grossly
inadequate in CIL subsidiaries in view of the fact that Indian coal contains
higher percentage of ash and washing of coal is of utmost significance, both
for the efficiencies in the user plants and from the point of view of
environmental concerns besides fetching higher returns.
Synchronise its excavation and transportation capacities.
New Delhi
Dated : 11 May, 2012
New Delhi
Dated : 11 May, 2012
(A.K. PATNAIK)
Deputy Comptroller and Auditor General
and Chairman, Audit Board
Countersigned
(VINODRAI)
Comptroller and Auditor General of India
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 45
Annexure-1
Date Milestones in Coal sector
1972 and 1973 Nationalisation of coal mines was done in two phases. In the first phase
(1972), coking coal mines were nationalised. In the second phase (1973)
non-coking coal mines were nationalised. Coal mines that could not be
nationalised were allowed to be worked by private lease holders.
November 1975 Coal India Limited (CIL), a holding company, under the Ministry of Coal
(MoC), was set up.
1976
14July1992
June 1993
The Coal Mines {Nationalisation) Amendment Act, 1976 was enacted
which inter alia terminated all the mining leases with the private lease
holders, except those of iron and steel producers who were allowed by
the Act to carry on coal mining for captive use.
In order to implement the provisions for captive mining of coal contained
in Coal Mines {Nationlisatoin} Amendment Act, 1976, a Screening
Committee was set up by MoC under the chairmanship of Secretary
(Coal} through an administrative order to consider applications made by
various companies interested in captive mining and to allocate coal
blocks for development, subject to the provisions of statutes governing
coal mining. A number of coal blocks, which were not in the production
plan ofCIL and the Singareni Collieries Company Limited (SCCL), were
identified in consultation with CIL/SCCL and a list of 143 coal blocks
were prepared and placed on the website of the MoC for information of
public at large.
The Coal Mines (Nationalisation) Amendment Act, 1993 was passed which
allowed Indian companies engaged in generation of power, in addition to the
iron and steel producers, to carry out coal mining for their captive use. It also
allowed washing of coal obtained from a mine at the pit head by private
companies.
15 March 1996 Cement sector was notified as an end use by inserting an enabling provision in
the Coal Mines (Nationalisation) Act.
February 1997 The Cabinet approved a proposal to amend the Coal Mines (Nationalisation)
Act, 1973 to allow non-captive coal mining by an Indian Company.
24 April 2000 The Coal Mines {Nationalisation) Amendment Bill 2000 was introduced
in the Rajya Sabha, seeking allocation of coal blocks to Indian companies
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 4 7
for commercial mining. The said bill met with stiff opposition from the
trade unions, who expressed concerns over the possibility of unscientific
mining and labour exploitation. The bill is pending in the House.
28 December A seven member Expert Committee on Coal sector Reforms (headed by
2005
Shri T. L. Sankar, Chairman Energy Group Administrative Staff College
of India) constituted by the Gol to prepare a comprehensive roadmap for
the modernisation of the coal sector submitted its report to the Prime
Minister.
February 2006 The Government permitted 100 per cent Foreign Direct Investment under
the Automatic Route for captive coal mining by companies in the power,
iron and steel and cement sectors and other eligible activities permitted
under the Coal Mines (Nationalisation) Act.
12 July 2007 Production of synthetic gas obtained through coal gasification (underground and
surface) and coal liquefaction were notified as specified end uses for the
purpose of captive mining.
17 October The Mines and Minerals (Development and Regulation) Act (MMDR
2008
Act), 1957 Amendment Bill was introduced in the Parliament. It
envisaged making the system of competitive bidding applicable to all
minerals covered under the said Act.
08 September The MMDR Amendment Act, 2010 was enacted.
2010
02 February
MoC notified the Auction by Competitive bidding of Coal Mines Rules,
2012
2012.
Performance Audit
48 Allocation of Coal Blocks and Augmentation of Coal Production
Annexure-11
Major Recommendations of the Expert Committee Report on Road Map for Coal Sector
Reforms (Chaired by Shri T.L. Sankar) 2005
Government of India, MoC constituted a seven member committee under the Chairmanship of Shri
T.L. Sankar on December 2004. The Expert Committee was to prepare a comprehensive road map
for the modernization of the coal sector. The committee submitted Part-I of the Report in
December 2005 which basically covered issues of immediate relevance i.e. short to medium term
(2011-12) issues. The present Performance Audit Report has considered the recommendations of
the Expert Committee vis-a-vis the actions taken by MoC in this regard. The salient features of the
recommendations are given below:
To keep the import option functioning as an essential supply option along with the
regulation of price in the Indian coal industry which would ensure least cost supply of coal
for power generation while allowing a competitive and transparent coal market to supply
the needs of other consumers.
Railways should in consultation with Planning Commission and Ministries of Coal and
Power to determine the main corridors through which coal would move in very large
quantities to power plants and examine the cost and feasibility of setting up of dedicated
trunk-routes for coal transport.
Organisation having long experience in importing coal be co-opted in implementing short
term supply management programme.
Elevation of status of CIL.
Emphasise on the role of captive mining to contribute significantly to production of coal in
the short to medium term ..
The procedures and processes of allocation of coal blocks needed to be improved to
expedite the allotment of the captive coal blocks in a transparent and effective manner.
Releasing coal blocks with inferred and indicated categories of reserves for captive mining
would not likely to achieve the objective of increasing the number of players in coal
mining in the short to medium term.
Production from captive blocks during mine development or periodic surpluses during
mine operations must be sold to CIL I SCCL at a negotiated price with a band of plus or
minus 10 percent of CIL price for the same quality of Coal.
Major delays occur, in most cases, in obtaining environmental clearance, approval for land
and mining leases from the concerned State Governments and the subsequent land
acquisition process. MoC should take a proactive role in monitoring the approvals and
clearance by the State authorities. An empowered high powered committees of Secretaries
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 49
should be set up for the pwpose to consider the application for environment clearances
within a time frame of four to six months.
Submission of Bank Guarantee, 50 per cent of which linked to guaranteed production and
50 per cent to setting up of end use projects.
Legal measures to cancel licenses issued earlier if the allottee failed to take adequate steps
to bring the allotted mines to production or in setting up of end use plants and encashment
of BG in full in such cases.
To launch a programme of detailed exploration and drilling in the Xlth Plan, aimed at
increasing 'proved' category reserves by increasing the drilling capacity ofCMPDIL from
3 lakh metres per annum to at least 15 lakh metres per annum by involving all eminent
agencies within the country and outside.
E-auction sell for a minimum of 10 per cent of domestic production initially and thereafter
to 20 per cent by the third year and to reach 30 per cent over a period of 5 to 7 years.
De-reservation ofCIL blocks that cannot be put into production before 2026-27.
Railways, Coal and Power Ministry have to work together to draw up a well-conceived
model of FST A. Gol should ensure that all the concerned Ministries and agencies accept
the FSTA and perform as per its provisions.
Setting up of a permanent Special Task Force to monitor progress of clearances and
project implementation of all projects required to be completed by the end of the Xlth Plan
to fully realise CIL' s production plans including the Emergency Production Plan to
enhance domestic coal production capacity.
Performance Audit
50 Allocation of Coal Blocks and Augmentation of Coal Production
SL
Company Name
No.
a b
1
Abhijeet
Infrastructure Ltd.
2
Abhijeet
Infrastructure Ltd.
3
Abhijeet
Infrastructure Ltd.
4 Usha Martin Ltd.
Neelachal Iron &
s Power Generation
& Bajrang Ispat
6
Bhusan Steel &
Strips Ltd. & Others
Electrosteel
7
Castings & Others
8
Essar Power Ltd. &
Hindalco
9 Rungta Mines Ltd.
10
Rungta Mines Ltd.
&Others
Annexure-m
Extractable Reserve in case of Opencast Mines allocated to Private Parties
Producing/
State
Block
Non
Date of
Name
Producing
Allotment
c d e f
Jharkhand i) Brinda
Non 26-May-
Producing OS
Jharkband ii) Sasai
Non 26-May-
Producing OS
Jharkband iii) Meral
Non 26-May-
Producing OS
Jharkband Lohari
Non
24-Aug-OS
Producing
Dumri Non
Jharkband
(Explored) Producing
13-Jan-06
New Patrapara
Non
13-Jan-06
Orissa
Producing
Non
Jharkhand NorthDhadu
Producing
13-Jan-06
Madhya
Mahan
Non
12-Apr-06
Pradesh Producing
Jharkband Bundu
Non
25-Apr-06
Producing
Radhikapur Non
25-Apr-06
Orissa
West Producing
Extractable
GR(IOO Whether Extractable
Reserve on actual
where MP
Sector
%)in MP Reserve (ER)
available/ 73 per
million available (in million
cent of GR where
tonne (YIN) tonne)
MP not available)
(in million tonne)
g b i
J
k
Sponge
N
Iron
Sponge
77.000 N S6.210
Iron
Sponge
N
Iron
Steel 11.765
y
9.045 9.045
Sponge
Iron
55.988
y
40.854 40.854
Sponge
433.000 N
Iron
316.090
Sponge
Iron, 923.945
y
Steel 340.054 340.0S4
Power 144.208
y
121.958 121.9S8
Sponge
102.268
y
Iron
32.167 32.167
Sponge
288.440 N
Iron
210.561
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 51
Extractable
GR(IOO Whether Extractable
Reserve on actual
Producing/ where MP
SL
Company Name State
Block
Non
Date of
Sector
%)in MP Reserve (ER)
available/ 73 per
No. Name
Producing
Allotment million available (in million
cent of GR where
tonne (YIN) tonne)
MP not available)
(in million tonne)
a b c d e f g h i
J
k
11
EssarPower
Jharkhand Chakla
Non
20-Feb-07 Power 83.101
y
Generation Ltd. Producing
71.140 71.140
12 JSPL Jharkhand Jitpur
Non
20-Feb-07 Power 81.095
y
Producing
65.535 65.535
13
Hindalco & TATA
Jharkhand Tubed
Non
1-Aug-07 Power 189.823
y
Power Ltd. Producing
130.000 130.000
14 DB Power Ltd. Chattisgarh
Durgapur III Non
6-Nov-07 Power 91.672 N
Sari ya Producing
66.921
15 Adani Power Ltd. Maharashtra
LoharaWest Non
6-Nov-07 Power 169.832
y
Extn. Producing
140.000 140.000
16
CESC Ltd. & JAS
Jharkhand Mahuagarhi
Non
9-Jan-08 Power 220.000 N
Infrastructure Producing
160.600
Monnet Ispat &
17
Energy Ltd, Tata
Orissa Mandakini-A
Non
9-Jan-08 Power 322.796
y
Power and Jindal Producing
Photo Ltd.
287.886 287.886
18
JSPL&Gagan
Jharkhand
Amark:onda Non
17-Jan-08 Power 410.000 N
Sponge Iron Ltd. Murgadangal Producing
299.300
SKS Ispat & Power
Non
19 Ltd. & Prakash Chattisgarh Fatehpur
Producing
6-Feb-08 Power 120.000 N
Industries.
87.600
Performance Audit
52 Allocation of Coal Blocks and Augmentation of Coal Production
Rungta Mines Ltd.
Choritand Non
20 & Sunflag Iron & Jharkhand
Tali ya Producing
St.eel Ltd.
JSW Steel Ltd.
21
Bhusan Steel &
Jharkhand Rohne
Non
Power, Jai Balaji Producing
Ind.
Mukund Ltd. Vini Rajhara North
Non
22 Iron & St.eel Udyog Jharkhand (Central &
Producing
Ltd. Eastem)
23
Strategic Energy North of Non
Tech. System Ltd.
Orissa
Arkhapal producing
Tata Steel Ltd. &
Non
24 Adhunik Thermal Jharkhand Ganeshpur
Producing
Energy Ltd.
25
Himachal EMTA I
West Bengal
Gourangdih Non
JSW St.eel Ltd. ABC Producing
14-May-
08
5-Jun-08
20-Nov-08
27-Feb-09
28-May-
09
10-Jul-09
Piglron 97.000 N
70.810
Steel 242.000
y
191.000 191.000
Steel 22.525
y
15.609 15.609
CTL 1500.000 N
1095.000
Power 137.000 N
100.010
Power 129.150
y
61.540 61.540
Total 3,969.890
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 53
Annexure - IV
Extractable Reserve in case of Mixed Mines allocated to Private Parties where Mining Plans are available
GR as
Extractable
Producing/
GR(lOO per MP
Reaerve (ER) on
SL
Company Name State
Block
Non
Date of
Sector
%)in forOC
actual as per MP
No. Name
Producing
Allotment million (in
(In million
tonne million
tonne)
tonne)
a b c d e f g h j
J
26 Jayaswal Neco Ltd. Jharkhand Moitra
Non 13-May-
Steel 215.780 38.160 29.910
Producing 05
27
Electrosteel Castings
Jharkhand
Parbatpur A
Producing 7-Jul-05 Pig Iron 235.718 7.150 5.720
Ltd. toe
28 Tata Steel Ltd. Jharkband
i) Kotre Non 11-Aug-
Steel 148.399 NA
Basantpur Producing 05
93.052
29 Tata Steel Ltd. Jharkhand ii)Panchmo
Non 11-Aug-
Steel 101.992 80.418 61.276
Producing 05
30
Corporate Ispat &
Jharkband Chitarpur
Non
2-Sep-05
Sponge
174.623 NA
Alloys Ltd Producing Iron
58.660
Topworth Urja &
31
Metals Ltd. (Formerly
Maharashtra
Marki Non
6-Sep-05
Sponge
6.190 NA
known as Shri Mangli- III Producing Iron
Virangana Steels Ltd.)
4.200
Topworth Urja &
32
Metals Ltd. (Formerly
Maharashtra
Marki Non
6-Sep-05
Sponge
11.540 NA
known as Shri Mangli-II Producing Iron
Virangana Steels Ltd.)
6.730
Topworth Urja &
33
Metals Ltd. (Formerly
Maharashtra
Marki Non
6-Sep-05
Sponge
4.890 NA
known as Shri Mangli-IV Producing Iron
Virangana Steels Ltd.)
3.035
Performance Audit
54
Allocation of Coal Blocks and Augmentation of Coal Production
Bhusan Power & Steel
Bijahan
34
Ltd.
(Unexplored
Orissa
Block)
35
JSPL & Nalwa Sponge
Chattisgarh
Gare Palma
Iron Ltd. N/6
36 Jayaswal Neco Ltd. Chattisgarh
Gare Palma
N/8
Madanpur
37 Ul1ratech & Others Chattisgarh
North
Madanpur South (NC
Madanpur
38 of Hindustan Zinc Chattisgarh
South
Ltd.)
Chhattisgarh Captive
39
Coal Mining Ltd. (NC
Chattisgarh Naki.al
oflspat Godavari &
Others)
Chhattisgarh Captive
40
Coal Company Ltd.
Chattisgarh Naki.all
(NC ofispat Godavari
& Others)
41 Tata Sponge & Others
Radhikapur
Orissa
East
42 BALCO Chattisgarh
DurgapurW
Taraimar
43
Sova Ispat & Jai Balaji
West
Ardhagram
Sponge Ltd.
BenllRI
44 Birla Corporation Ltd.
Madhya
Bikram
Pradesh
45
Electrothenn (India)
Chattisgarh Bhasklllpara
Ltd, Grasim Industries
Non
Producing
Non
Producing
Non
Producing
Non
Producing
Non
Producing
Non
Producing
Non
Producing
Non
Producing
Non
Producing
Non
Producin2
Non
producing
Non
Producing
Sponge
13-Jan-06
Iron
327.046 185.113
161.200
13-Jan-06
Sponge
158.097 73.985
Iron
66.371
13-Jan-06 Steel 107.204 14.819
11.750
Power,
13-Jan-06 Sponge 213.460 113.820
Iron
94.960
Power,
13-Jan-06 Sponge 180.490 146.170
Iron
115.740
13-Jan-06
Sponge
Iron
359.850 105.030 98.320
13-Jan-06
Sponge
Iron
7-Feb-06
Sponge
183.429 172.083
Iron
105.240
6-Nov-07 Power 211.366 96.990
70.120
6-Dec--07
Sponge
25.600
Iron
2.143 1.863
12-Aug-
Cement 20.975 4.655
08
3.758
21-Nov- Sponge
46.910 NA
08 Iron
18.670
Total 1010.575
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 55
56
SL
No.
a
46
47
48
49
50
51
52
Performance Audit
Annexure-V
Extractable Reserve in case of Mixed Mines allocated to Private Parties where Mining Plans are not
available
Producing/
GR(IOO Extractable
Block Date of %)in Reserve at 37% or
Company Name State
Name
Non
Allotment
Sector
million GR
1
Producing
tonne (in million tonne)
b d r h
i
c e g
=h*37/100
Domco Smokeless Fuel Pvt
Jharkhand
Lalgarh Non
8-Jul-05 Pig Iron 27.088
Ltd. North Producing
10.023
Ashok
Non
Essar Power Ltd. Jharkhand Karkata
Producing
6-Nov-07 Power 110.000
Central 40.700
Bhusan Power & Steel Ltd. Jharkhand Patal East
Non
6-Nov-07 Power 200.000
Producing
74.000
AES Cbhattisgarh Energy Pvt.
Chattisgarh Sa yang
Non
6-Nov-07 Power 150.000
Ltd Producing
55.500
Arcelor Mittal India Ltd. &
Jharkhand Seregarha
Non
9-Jan-08 Power 150.000
GVK. Powers (G .Sahib) Producing
55.500
Sterlite Energy, GMR. Energy,
Arcelor Mittal India Ltd,
Orissa
Dip Side of Non
17-Jan-08 645.235 238.737
Lanco Group, Navabharta Rampia Producing
Power (IPP), Reliance Energy
Sterlite Energy, GMR Energy,
Aicelor Mittal India Ltd,
Orissa Rampia
Non
17-Jan-08 Power
Lanco Group, Navabharta Producing
Power (IPP), Reliance Energy
Allocation of Coal Blocks and Augmentation of Coal Production
JLD Yavatmal Energy, RKM
53
Powergen, Vandana Vidyut,
Chattisgarh
Fatehpur Non
23-Jan-08 Power 500.000
Visa Power, Green East Producing
Ifrastructure
185.000
54 Bihar Sponge Iron Co. Ltd. Jharkhand Macherkunda
Non
5-Aug-08
Sponge
23.860
Producing Iron
8.828
Ramchandi
Non
55 Jindal Steel & Power Ltd. Promotional
producing
27-Feb-09 CTL 1500.000
Orissa
Block
555.000
Rungta Mines Ltdl Kohinoor Non
Power&
56
Steel Pvt. Ltd.
Jharkhand Mednirai
Producing
28-May-09 Sponge 80.830
Iron
29.907
IST Steel & Power, Gujarat
Dahegaon Non
Steel/
51 Ambuja Cements, Lafarg India Cbattisgarh
Mak.ardhokra producing
17-Jun-09 CementJ 132.000
Ltd. Cement
48.840
Totid 1,302.035
1
37% has been worked out based on the average quantity of Extractable OC reserves of Mixed mines where Mine Plans were available.
Performance Audit
Allocation of Coal Blocks and Augmentation of Coal Production 57