How to gov­ern nat­u­ral wealth

Al­lo­ca­tion process must strike a bal­ance be­tween eco­nomic growth and en­vi­ron­men­tal and so­cial con­cerns

Down to Earth - - COVER STORY -

AL­LO­CA­TION OF nat­u­ral re­sources in a fair and trans­par­ent man­ner has been a tricky business for the gov­ern­ment. Even be­fore the Supreme Court de­clared the 218 coal block al­lo­ca­tions “il­le­gal”, be­cause of the “ar­bi­trari­ness” and “in­ef­fi­ciency” in al­lo­ca­tion to pri­vate and pub­lic sec­tor com­pa­nies, two botched cases of re­source al­lo­ca­tions were etched in pub­lic mem­ory.

In 2008,the Supreme Court quashed all the 122 li­cences for 2G tele­com spec­trum is­sued by upa gov­ern­ment on a first-come-first-served ba­sis. The li­cences, which favoured a few pri­vate tele­com play­ers, had cost 1.76 lakh crore to the state ex­che­quer, ac

` cord­ing to the cag re­port.

The apex court is also hear­ing a case re­lated to the gas field al­lo­ca­tion and pric­ing of nat­u­ral gas.In 1999, after the Cen­tre in­tro­duced the New Ex­plo­ration Li­cens­ing Pol­icy, al­low­ing pri­vate play­ers to en­ter the field of ex­plo­ration and pro­duc­tion of gas and oil, Re­liance In­dus­tries bagged the con­tract for D6 block with 7,645 sq km area in Kr­ishna-Go­davari (KG) basin for ex­plo­ration and pro­duc­tion of gas and oil. But Re­liance vi­o­lated its sup­ply con­tract, forced the gov­ern­ment to hike gas price in its favour and dras­ti­cally re­duced and de­layed the profit share of the gov­ern­ment, high­lights the 2011 cag re­port on Per­for­mance Au­dit of Hy­dro­car­bon Pro­duc­tion Shar­ing Con­tracts. “Nat­u­ral re­sources be­long to the peo­ple, and the state gov­ern­ment is the cus­to­dian of nat­u­ral re­sources. How­ever, al­lo­ca­tion of the D6 block to Re­liance in KG basin has vi­o­lated the in­ter­ests of the state and its peo­ple,” notes a pub­lic in­ter­est pe­ti­tion against Re­liance.

As of now, the coun­try seems to be nowhere near re­solv­ing the grow­ing de­bate on what is the best way to al­lo­cate nat­u­ral re­sources, which ranges from min­er­als to coal to air­waves. The only at­tempt made to re­solve the is­sue so far was in 2011 when the gov­ern­ment set up a com­mit­tee un­der Fi­nance Sec­re­tary Ashok Chawla to sug­gest a roadmap for en­hanc­ing “trans­parency, ef­fi­ciency and sus­tain­abil­ity in the al­lo­ca­tion, pric­ing and util­i­sa­tion of nat­u­ral re­sources”. A ma­jor rec­om­men­da­tion of the Chawla Com­mit­tee was to in­tro­duce mar­ket-based com­pet­i­tive bid­ding to en­sure trans­parency (see ‘Codes of con­duct’on p36).

The idea was not new. It was first floated in 2004 by the then sec­re­tary of the coal min­istry. But states op­posed bid­ding. The then chief min­is­ter of Ra­jasthan, Va­sund­hara Raje Scin­dia, wrote to then prime min­is­ter Man­mo­han Singh cit­ing Sarkaria Com­mis­sion’s rec­om­men­da­tion, which said states should have the au­ton­omy to al­lo­cate nat­u­ral re­sources. Ch­hat­tis­garh’s then chief sec­re­tary K Vi­jayavargiya said bid­ding would lead to coal price rise which would in turn lead to the in­crease in elec­tric­ity tar­iff. West Ben­gal op­posed bid­ding and wanted states to have the au­thor­ity to al­lo­cate coal blocks.

De­spite op­po­si­tions, in 2012 the Cen­tre in­tro­duced the Auc­tion by Com­pet­i­tive Bid­ding of Coal Mines Rules. Last year 10 coal blocks were al­lo­cated through bid­ding. It has also or­dered auc­tion for grant­ing fresh li­cences for the 2G spec­trum. But is bid­ding the best way to al­lo­cate nat­u­ral re­sources?

Auc­tion with cau­tion

Sev­eral coun­tries follow bid­ding mech­a­nism for al­lo­cat­ing nat­u­ral re­sources for two rea­sons. One, it gen­er­ates higher rev­enues for the gov­ern­ment in a short du­ra­tion; and two, it in­creases trans­parency.

How­ever, bid­ding has an in­her­ent caveat. “There is a risk of sub­jec­tiv­ity and dis­crim­i­na­tion in the eval­u­a­tion process (of min­ing pro­pos­als) if proper con­di­tions of bid­ding are not al­lowed,” says S Vi­jay Kumar, for­mer sec­re­tary of the Min­istry of Mines and a mem­ber of the Chawla Com­mit­tee.

Ex­pe­ri­ences from other parts of the world support Kumar’s opin­ion. In a 2013 re­port, Aus­tralian think tank In­de­pen­dent Com­mis­sion Against Cor­rup­tion pointed out that if not struc­tured prop­erly, the cri­te­ria for se­lect­ing and eval­u­at­ing com­pa­nies through bid­ding can be dis­cre­tionary. Dur­ing the min­ing boom in Aus­tralia, many com­pa­nies par­tic­i­pated in bid­ding by promis­ing pub­lic ben­e­fits in fu­ture, which they never de­liv­ered, notes the re­port.

Be­sides, says Kumar, one needs to have suf­fi­cient in­for­ma­tion about a nat­u­ral re­serve, say a coal block, in hand be­fore bid­ding for it. This can be ob­tained only through proper ex­plo­ration, he adds. A 2011 World Bank re­port on min­eral re­sources also sug­gests that gath­er­ing suf­fi­cient ge­o­log­i­cal data is im­por­tant be­fore com­menc­ing bid­ding. The other safe­guard that the re­port sug­gests is to con­duct sep­a­rate tech­ni­cal and fi­nan­cial eval­u­a­tions. So­cial safe­guards should be clearly spec­i­fied in the bid­ding pro­posal and form a ba­sis for eval­u­a­tion, it says.The UN’s Sus­tain­able De­vel­op­ment So­lu­tions Net­work in its 2013 re­port also em­pha­sises the op­ti­mi­sa­tion of ex­plo­ration of nat­u­ral re­sources.

Many coun­tries that al­lo­cate nat­u­ral re­sources through bid­ding carry out de­tailed ex­plo­ration be­fore­hand.In Demo­cratic Repub­lic of Congo, auc­tion­ing is done only after a de­posit has been ex­am­ined by the state au­thor­i­ties and is con­sid­ered to be an as­set of sub­stan­tial value.In Zam­bia, auc­tion­ing is done only for ar­eas that are known to hold min­eral re­sources.

“How­ever, ex­plo­ration of nat­u­ral re­sources is not done in a com­pre­hen­sive man­ner in In­dia,” says Gan­pat S Roon­wal, min­ing ex­pert and for­mer head of the ge­ol­ogy depart­ment at the Univer­sity of Delhi. This raises ques­tions on the ef­fec­tive­ness of bid­ding.

Is CIL an op­tion?

Nat­u­ral re­sources be­long to peo­ple and they have to be the ben­e­fi­cia­ries.To en­sure fair al­lo­ca­tion of coal, pe­ti­tion­ers of the case, de­mand that all coal blocks de­clared il­le­gal by the court should be re­turned to the Coal In­dia Ltd.But not all agree with the sug­ges­tion.

The coun­try’s tar­geted gdp growth of about 10 per cent banks largely on in­dus­tries that heav­ily de­pend on coal.In 2013-14,the coun­try pro­duced 565.64 mil­lion tonnes of coal. Given the coun­try’s grow­ing en­ergy de­mand, coal re­quire­ment is likely to dou­ble by 2017, ac­cord­ing to the 12th Five-Year Plan. “In such a sit­u­a­tion it is un­likely that pri­vate par­ties can be taken out from the equa­tion,” says Roon­wal. In 1993,the Coal Mines Na­tion­al­i­sa­tion Act al­lowed pri­vate com­pa­nies to de­velop coal blocks as cil was un­able to meet the grow­ing de­mand. “So one needs to en­sure that coal is prop­erly al­lo­cated and utilised with reg­u­la­tions and tech­nolo­gies in place,” he says. This is ap­pli­ca­ble to all nat­u­ral re­sources, he adds.

Reg­u­late, not ne­go­ti­ate

Al­lo­ca­tion of nat­u­ral re­source is not just an eco­nomic con­sid­er­a­tion. “The best prac­tices are the ones that are trans­par­ent, safe­guard the rights of af­fected peo­ple and have min­i­mal im­pact on the en­vi­ron­ment and so­ci­ety,” says Roon­wal. In­dia must follow th­ese prac­tices as a majority of its re­sources lie un­der­neath the forests. Since 2007,about 45,000 hectares of for­est— 57 per cent of the to­tal for­est di­verted for min­ing dur­ing the pe­riod—were razed to give way to 157 coal min­ing projects, shows an anal­y­sis by the Cen­tre for Sci­ence and En­vi­ron­ment (cse), an ad­vo­cacy or­gan­i­sa­tion in Delhi (see ‘For­est cover in ma­jor coal­fields’).

Open-cast min­ing also leaves deep scars on the earth sur­face.An es­ti­mate by cse shows that there are at least 240 aban­doned coal mines across the coun­try. Few com­pa­nies re­store the mined area to re­duce en­vi­ron­men­tal im­pact.The burn­ing coal­fields of Jharia in Jhark­hand are glar­ing ex­am­ple of the poor per­for­mance of min­ing com­pa­nies.

Roon­wal, who has also served as an ex­pert mem­ber in the Union Min­istry of En­vi­ron­ment and Forests’ (moef’s) ad­vi­sory com­mit­tee on coal min­ing, says un­der­ground min­ing is a fea­si­ble op­tion for large-scale min­ing.The in­dus­try thinks un­der­ground min­ing is an ex­pen­sive method.But the fact is it does not in­volve ex­ter­nal­i­ties such as loss of forest­land,dis--

place­ment of peo­ple and pol­lu­tion haz­ards.

Worst part of min­ing is that com­mu­ni­ties lose their tra­di­tional dwelling as well as liveli­hood. moef in­for­ma­tion shows that since 2007, over 720,000 peo­ple have been dis­placed by coal min­ing ac­tiv­i­ties. Ground re­al­i­ties sug­gest that the ac­tual num­ber of peo­ple dis­placed is much more. About 90 per cent of In­dia’s coal is found in tribal ar­eas where 50 per cent of the pop­u­la­tion lives be­low the poverty line. Tak­ing cog­ni­sance of the prob­lem, the Supreme Court in 1997 ruled that pri­vate leases for min­ing would not be al­lowed in Sched­ule V ar­eas (tribal ar­eas). The judge­ment, known as Sa­mata judge­ment, fol­lowed the pe­ti­tion of tribal ac­tivists who con­tended land ac­qui­si­tion by pri­vate com­pa­nies in Ni­malapedu vil­lage of Andhra Pradesh for cal­cite min­ing. How­ever, the court had said if the state al­lows min­ing in such ar­eas, ben­e­fits of min­ing should be shared with the af­fected com­mu­nity. “At least 20 per cent of the net profit should be set aside as a per­ma­nent fund for com­mu­nity use,” says the judge­ment.

Since min­ing may af­fect com­mu­ni­ties in other ar­eas as well, profit-shar­ing should not be re­stricted to tribal ar­eas. The draft Mines and Min­er­als (De­vel­op­ment and Reg­u­la­tion) (mmdr) Bill, 2011, which lapsed early this year, had a pro­vi­sion of shar­ing profit with all af­fected com­mu­ni­ties. As per the pro­vi­sion, a mine lease holder must pay an­nu­ally to the Dis­trict Min­eral Foun­da­tion 26 per cent of its profit-after-tax in the case of coal and lig­nite (and an amount equiv­a­lent to 100 per cent roy­alty in case of ma­jor min­er­als such as iron ore), as a profit-shar­ing mech­a­nism.Now that the gov­ern­ment plans to amend the mmdr Act, 1957, it should in­clude the mech­a­nism in the amended Act. This will go a long way in en­sur­ing prin­ci­ples of equal­ity as en­shrined un­der Ar­ti­cle 14 of the Con­sti­tu­tion and re­duc­ing poverty in the min­ing re­gions of the coun­try.

“The mmdr Act 1957 was en­acted at a time when pub­lic sec­tor was dom­i­nant,” says Chan­dra Bhushan, deputy di­rec­tor gen­eral of cse. “Though the Act has been amended a few times, it still suf­fers from non­trans­parency in terms of mine al­lo­ca­tion and vague pro­vi­sions for min­eral con­ser­va­tion,” says Bhushan.

The Act, fol­low­ing the 2010 amend­ment, spec­i­fies that the Cen­tre can auc­tion nat­u­ral re­serves.The state gov­ern­ment shall then grant the re­quired per­mits, in­clud­ing re­con­nais­sance per­mit, prospect­ing li­cence or min­ing lease, to the company. In­stead of re­solv­ing, the amend­ment has in­ten­si­fied the de­bate about who gov­erns th­ese re­serves and does not ad­dress the con­tention of state gov­ern­ments re­gard­ing their “vir­tu­ally non-ex­is­tent” role once a ben­e­fi­ciary has been iden­ti­fied by the Cen­tre.The mmdr Act thus needs to clearly spec­ify the role of the Cen­tre and the state.

In­te­grate green clear­ances

Sev­eral coal blocks, though al­lo­cated years ago, are yet to be­gin pro­duc­tion.In most cases,the com­pa­nies de­lay pro­duc­tion on the pre­text that they are yet to ob­tain en­vi­ron­men­tal and for­est clear­ances.If prior en­vi­ron­men­tal clear­ances are in­te­grated in the al­lo­ca­tion process, dis­putes in the post-al­lo­ca­tion phase could be min­imised.The Chawla Com­mitte in its re­port had rec­om­mended that com­pa­nies should ob­tain a cer­tain level of clear­ance, for in­stance pre­lim­i­nary for­est clear­ance, be­fore bid­ding for an ex­plored block. This will fast-track pro­duc­tion and en­sure that coal blocks are al­lo­cated in a more en­vi­ron­men­tally and so­cially re­spon­si­ble man­ner.

This is im­por­tant as the coun­try’s coal re­serves are de­plet­ing at a fast rate. Ac­cord­ing to Coal Mine Plan­ning and De­sign In­sti­tute Ltd head­quar­tered in Ranchi, cil is now left with 18 bil­lion tonnes of coal. If mined at the cur­rent rate the re­serves would last 17 years.

This will force the coun­try to im­port coal for gen­er­at­ing power and other in­dus­trial use. This is not a vi­able op­tion. Power util­i­ties are al­ready ex­pected to im­port around 159 mil­lion tonnes to meet their re­quire­ment, ac­cord­ing to the 12th plan re­port. Another 54 mil­lion tonnes of coal is likely to be im­ported by ther­mal power sta­tions de­signed to use im­ported coal. More de­pen­dence on im­ported coal to gen­er­ate power will only push the elec­tric­ity price north­wards and lead to in­creas­ing power short­age. The gov­ern­ment must re­mem­ber this be­fore fram­ing reg­u­la­tory mech­a­nism to gov­ern the na­tional as­set.

Very few com­pa­nies re­store the mined area to re­duce im­pact on the en­vi­ron­ment. The coun­try

has more than 240 aban­doned coal mines

SU­GANDH JUNEJA / CSE

About 90 per cent of In­dia's coal is found in tribal ar­eas where more than 50 per cent of the pop­u­la­tion lives be­low the

poverty line

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