Proceeds from Coal Blocks Take a Hit as Only Seven Start Operations

Open cast mining in Jharia. Credit: IAC/Flickr, CC BY 2.0

Open cast mining in Jharia. Credit: IAC/Flickr, CC BY 2.0

With mining operations commencing in only seven of the 67 mines that were auctioned and allocated, the government has so far collected merely Rs.133 crore against the total bid revenue and royalties it had expected. In addition to this amount, it has received Rs.1,230 crore from the 67 mines as the fixed upfront charges that were to be paid regardless of whether mining takes off or not. Therefore, in total, the Centre has collected Rs.1,363 crore.

A ballpark estimate of revenue, based on the average mine life of 30 years, suggests the government would earn Rs.11,100 crore annually if all the 67 mines were in operation. This is based on the government’s estimate that it stands to potentially earn Rs.3.35 lakh crore over the life of the mines. The ballpark figure comes with the caveat that in reality, each block would have a different mining plan and indexing the revenue for inflation would alter the figures. Mining expectedly would be delayed in cases where ownership of mines is changing hands. This would lower the inflow of funds from operations in the initial period. The auctions and allocations for the coal blocks had taken place by the first quarter of 2015.

Of the total amount received by the Centre from the miners till date, Rs.648 crore, 48% of what it has collected has been transferred to the states. Ideally, the entire money should have been transferred to the states.

The coal ministry says it is working on streamlining the flow of funds to the states.

There are three streams of funds to the exchequer that flow from the coal auctions and allocations. The first would flow from the bidders depositing a prefixed upfront payment, not linked to production or the final value of coal determined through the bids or allocation process. The government calculated this for each mine before auctioning and allocating.

This upfront payment, the government decided, would be 10% of the intrinsic value of the mine. According to the coal ministry, the intrinsic value was calculated by discounting the net of revenue generated over 30 years at a Coal India-notified price for the particular grade of coal and the cost associated with excavating ore from similar mines. Business Standard asked for the intrinsic values of each mine. The government did not share these.

The upfront payment was payable over three instalments. For schedule-II mines, the first instalment was set at 50 per cent of the upfront payment. The second instalment of 25 per cent was to be paid at the end of six months, with the balance being deposited within 12 months of the formal allotment. For schedule-III mines, the second instalment was predicted on the execution of mining lease and the final instalment on the grant of mine opening permission.

The second stream of revenue is the value of the coal excavated and the third stream is the associated royalties. Both these come to the exchequer only when the mines begin production and stretches over the life of the mine. Of the first income stream (upfront payment), the Centre should have collected Rs 1,768 crore by now. Against this stream, it has received Rs.1,230 crore so far or 70 per cent of the expected amount. But, the coal ministry pointed out, that several leases have not been signed as yet for schedule-III mines, so they had a lower expectation of Rs.1,403 crore from this stream.

The coal ministry said, “The amount actually deposited is Rs.1,029 crore for the first instalment and Rs 200 crore against the second instalment (of the upfront payment).”

It added, “The amount due from Utkal-C and Mandakini have not been received as the matter is sub judice. Similarly, Kasta East block allotted to West Bengal Power Development Corporation has not deposited the first instalment. So, all allocatees except two where the matter is in court and one PSU (public sector undertaking) have deposited the upfront amount.”

In the case of the second instalment, two companies have defaulted. The ministry said it has issued a show-cause notice to Essar Power for Tokisud North and Monnet Ispat for Gare Palma IV/7 blocks, asking why their bank guarantees should not be deducted for the amount due from them.

The lease deeds of four mines in Madhya Pradesh have been registered. The lease deeds of mines in Chhattisgarh are expected to be registered within a week. The mining lease of mines in Jharkhand are also expected to be registered within this month, says the ministry.

There are several other reasons for delay in mines commencing operations. The ministry says bottlenecks exist at the state level and it has given all requisite clearances.

The ministry says the Centre is engaging regularly with states to resolve issues such as application of stamp duty for execution of mining lease, valuation of land for mutation and pending dues of successful bidders. Of the 67 mines auctioned and allotted, those that have begun production are Talabira-I, Sarshatalli, Mandla North, Belgaon, Amelia North, Parsa East and Kanta Basan.

This article was originally published on Business Standard.