In a month's time, the National Democratic Alliance government will start allocating coal blocks to state governments for commercial mining,  the Business Standard reported on Monday.

This could be good news for India's small and medium enterprises, which are facing large coal shortages. These companies, smaller in size, cannot get coal through captive coal-block auctions, the government mining company Coal India Limited's coal e-auctions, or coal linkages where fixed quantum of coal is supplied by CIL to the users. Only large companies can afford these.

It is to meet the needs of these companies that the Indian government allots some coal blocks to state companies for commercial mining.

In the past, however, this model has not worked well. Cash-strapped states companies, like Maharashtra State Mining Corporation, unable to mine on their own, ended up signing one-sided deals with private companies where the private company got to decide who could buy the coal.

And so, India's small and medium enterprises continued to get their coal in other ways. They cobbled together private arrangements where local companies with coal linkages sell them some coal. Or they turn to India's many informal coal mandis (marketplaces). Like Chandasi, a coal mandi outside Varanasi.

Last year, in its judgement cancelling all captive coal block allocations, the Supreme Court struck down the two dominant models for public-private joint ventures – the 51:49 joint venture where the private partner held 51% of the ownership share, and the even more egregious 74:26 Mine Developer and Operator model where the private company held 74%. In both the models, control over the coal block lay with the private company.

This time around, will things work out differently? It is hard to say. 

Tricky questions

One reason the state companies outsource coal mining is because they are too cash-strapped to mine on their own. Take MSMC. It was allotted three coal blocks even though it had an annual budget of Rs 14 crore-Rs 15 crore. After staff salaries, it was left with no more than Rs 6 crore-Rs 7 crore. Far below what is needed to develop three mines.

This time too, it will be interesting to see if the government allots coal blocks to small public sector units like MSMC or to larger, better capitalised ones.

There is another question. Till now, the Indian coal sector has struggled to create public-private partnership arrangements which are fair to both the private company and the public sector units. The two joint-venture models mentioned above were biased in favour of the private company. Now, given the Supreme Court order, which cancelled the two joint venture models, the public sector units will most likely follow the subcontracted Mine Developer and Operator model. Here, the miner gets paid for the coal extracted. Ownership over the coal block stays with the public sector units.

There are two big concerns here. First, on the specifics of these agreements. For instance, last May, the government-owned National Thermal Power Corporation invited bids from private companies to extract coal from its Kerandari block in Jharkhand. The tender placed the onus for land acquisition, and resettlement and rehabilitation, on the company that won the bid. The rationale for this design? A local company can do land acquisition faster. The tender came with penalties for delays.

Land trouble

The outcome of such a model, as this report explains, is that it pushes all the risk to the private company even as its gains stay fixed. Such companies, with looming penalties for delays, are likely to be more ruthless with land acquisition. This is a trend that could exacerbate local protests against projects.

This also creates conditions that favour companies that can manage the politics of land acquisition in India over specialist mine operators, especially international ones. In the past, a foreign miner that entered into a public-private coal mining contract in Jharkhand found the government partner NTPC expected it to do land acquisition even at the cost of buying out locals opposing the project. A lot also depends on the size of the coal blocks being allotted for commercial mining. Foreign companies will not find small blocks attractive enough to set up shop in India.

Threat of cartels

The concern is this: there is a risk that a handful of Indian companies will come to dominate the coal sector. It has not helped, as a senior executive in an international coal mining company told Scroll, on the condition of anonymity, that the government is auctioning five or six captive coal blocks at a time. “If they auction 70-80 coal blocks at the same time, there is enough for everyone," the executive said. "When few blocks are auctioned at a time, people start trying to strike deals so that prices do not go through the roof.”

It is possible that, similarly, a small group of companies could come to dominate the commercial mining auctions as well. As it is, three companies dominate the Mine Developer and Operator space in India right now – Adani Enterprises, Kolkata-headquartered EMTA and long-time Coal India contractor, Aryan Beneficiation. At its peak, EMTA was mining coal from 14 coal blocks for a clutch of state power utilities. In recent years, Adani Enterprises has been getting active in the domestic coal mining sector as well. If indeed the government opens up commercial mining for state companies, it might end up boosting the fortunes of a few companies instead of creating a robust coal market.