ANALYSIS-India’s coal crunch – a chance to revamp, reallocate and revive – by Krishna N Das and Abhishek Vishnoi (Reuters India – August 27, 2014)

NEW DELHI/MUMBAI, Aug 27 (Reuters) – A court ruling this week that India’s decades-old method of granting coal mining concessions is illegal could herald much-needed reforms in a sector long dogged by the inability of state-run Coal India to raise output fast enough.

In declaring scores of coal block allocations made since 1993 unlawful and arbitrary, the Supreme Court has put investments worth billions of dollars at risk.

If it goes the next step and cancels the concessions after a further hearing due to start on Monday, India may have to import vast amounts of coal to keep the lights on.

In the long run, however, the decision could bring clearer rules to a sector that has failed to provide India with enough power because it has been so hamstrung by confusion and scandals over concessions allegedly handed to government cronies.

Coal India has a monopoly over coal that is mined for sale. The scandal, dubbed “Coalgate” by the media, concerns concessions sold to steel, cement and power firms to dig up coal for their own use.

The furore erupted after a federal auditor’s report in 2012 found that underpriced sales had cost the exchequer as much as $33 billion.

The court ruled that 218 coal blocks were awarded illegally. Because of the uncertainty, only 30 are operational. Their capacity is less than 10 percent of the 565 million tonnes produced in India as a whole in the last fiscal year to March.

The government has already said it would consider allowing private firms to mine coal for sale instead of their own consumption and the court ruling may pave the way for that.

“The government may convert this crisis into an opportunity and now should take all bold reforms such as permission for commercial mining, fair auction policy, regulatory reform,” said Rakesh Jain, associate director at consultancy Feedback Infrastructure.

Accusations that resources from coal to mobile telephone bandwidth were routinely allocated as backhanders plagued the government of former Prime Minister Manmohan Singh, whose Congress party suffered its worst defeat in elections this year.

Singh’s successor, Narendra Modi, has pledged to tackle ‘crony capitalism’ and provide power for all in a country that sits on the world’s fifth-largest reserves of coal.

Sources told Reuters before Modi came to power that he could consider breaking up Coal India to help end its near-monopoly and bring more competition, although unions have threatened street protests to thwart such a move.

Legal wrangling and investigations into the concession process meant there was a tepid response to India’s first coal block auction in February. The government withdrew the auction after only two firms bid for one of the three blocks on offer.

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