SC must rethink Coalgate ruling

The judgement is a huge blunder, because the court does not appreciate the involvement of a private entity in the matter of mining of coal.

 |  5-minute read |   01-10-2014
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The Supreme Court's Coalgate and 2G judgements are a disappointment. The Coalgate judgement starts by saying it is dealing with only the allotment of coal mines to private parties, but then it goes on to quash allotment of coal mines even to government entities.

The judgement holds clearly that the allotment to central government undertakings and entities involved in the generation of power is justified, but still it cancels allotments on a misconceived notion that every state government has a joint venture with a private entity.

The judgement is a huge blunder, because the Court does not appreciate the involvement of a private entity in the matter of mining of coal.

In my view, all those private companies who have been allotted these coal mines for the purpose of generating power, who were then to supply the generated power to distribution licensees (whose tariff was to be determined by the State Regulatory Commission) will fall in the same category as the Ultra Mega Power Plant which has been exempted by this judgement.


In such cases, the Regulatory Commission would be obliged to factor in the captive coal mine and the cost of extraction of coal for the purpose of determining the electricity tariff. To say all these allocations are bad, will put the power generation forecast of this country at least ten years behind schedule.

What the Supreme Court has failed to appreciate was in the year 1992-93, a general decision was taken by the Centre to bring private investors into infrastructure development. As part of the same policy it was decided to bring in private investors - both in the telecom as well as in the power sector.

It is sad the UPA was unable to justify both the first-come first-served 2G spectrum at a pre-fixed cost or the out of turn coal block allocations. This would have helped make telecom more affordable.

Also allocating coal blocks to private power generators would have ensured more efficient and quality mining, which Coal India was unable to provide. It would also have ensured pilferage from the Coal India mines would have ended, augmenting the power generation in this country.

What both the Coalgate and 2G judgements have failed to appreciate, was that the privatization of both telecom and power, would operate in a competitive as well as in a regulated environment.

The Telecom Regulatory Authority of India (TRAI) and the Regulatory Commission in each state would determine the tariff at which the telecom and power services were to be made available to the people of this country.

Any benefit given to private operators in this background was thus bound to be passed on to the people of India. If such a pass through were not to take place then the regulator in both sectors were there to ensure the same.


The petitioners in both the matters have been successful in getting a favourable judgement from the Court, but what the Court does not realize is that through these judgements - only 15 per cent of total revenue reaches the common man, with 85 per cent of the revenue reduced to "line loss" - money which will be pocketed by politicians and middleman.

Thus the benefit which the telecom sector or power sector, were to get by direct allotment of spectrum or coal to private investors will be completely lost, if the private players are made to procure the same resources at a higher price.

This will lead to higher tariffs, both in the telecom and power sector, which the common man will have to bear. It is depressing to note those who have argued against this have been ignored. The argument of one Attorney General, that this will have no impact on the economy, has been accepted in toto, despite the fact several senior counsels had brought out in detail the huge impact of the judgement on the power and banking sectors in particular.


Though subsequent judgements delivered by the bench of the Hon'ble Chief Justice have taken note of the argument of the senior counsels, they do not deal with them on the specious premise that the Attorney General has taken a stand that the judgement will have no impact on the economy.

In my view, the judgement which has directed allottees of coal blocks to pay an additional levy of Rs 295 per metric ton of coal is also without any justification. Every power generator who has utilized coal from the mine, and supplied power to the people, has a right to get this additional levy recovered through tariffs, as the power generators are under a cost plus regime under the Electricity Act, 2003.

They are entitled to be compensated for any additional expenditure they are asked to make, over and above the expenses that they have already incurred in the generation of power.

On the whole, the judgment of the Supreme Court is more disappointing in the Coalgate matter, than in the 2G matter, as in that case at least all the licensees had been heard before passing the order.

However, in the Coalgate matter, the affected coal block allottees were not given any notice to appear and make their submissions justifying their allocation.


Vikas Singh Vikas Singh

The writer is the former Additional Solicitor General of India.

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