CAG overlooked complex coal geology while presuming loss

Even at the outset it appears that the geology of coal deposits, which is far too complex to lend itself to any simplistic approach, has been overlooked by the Comptroller and Auditor General (CAG) in his computations.

Among all our natural resources, coal is arguably the most difficult to deal with in many respects because of its unpredictable geology — the thickness of the coal seams cannot be taken to be constant everywhere and they are known to pinch out suddenly.

Their structural disposition varies considerably from ‘horizontal’ through ‘inclined’ to more complicated ‘folds’ and they do suffer displacements by the process of ‘faulting’ which may advantageously repeat them many times over or adversely remove them. Then there are various types of coal that decide their market value. Therefore, to arrive at an estimate of the probable loss to the exchequer due to the alleged arbitrary allocation of a few of the coal blocks to some private sector companies is indeed a Herculean task.

Coal is a generally black, combustible, carbonaceous sedimentary rock, formed from the compaction of layers of partially decomposed vegetation and occurs in a stratified form in deposits. It is formed by physical, chemical and biological processes, acting on plant remains deposited in ancient shallow swamps, over millions of years, governed by pressure and temperature. This ‘coalification’ process starts with peat and extends through lignite to bituminous coal and finally to anthracite with increasing carbon content. Indian coal is broadly classified into ‘coking’ and ‘non-coking’ varieties, the former being used mainly in the steel industry, and the latter in the cement and fertilizer industries and in the power sector.  

It was in 1973 that the Indira Gandhi government nationalised coal mines containing both coking and non-coking coals. In 1976, two exceptions were made: 1) Captive mining by private companies engaged in the production of iron and steel and 2) sub-lease of coal mining to private parties in isolated pockets not amenable to economic development and not requiring rail transport. The coal sector was opened on June 6, 1993 and in 1996 coal mining even by cement companies was allowed.  About 155 coal blocks were reportedly allotted to about 100 public and private companies.

The estimation of the reserves of coal is a geological exercise beset with a lot of uncertainties because all the requisite data to quantify the deposits may not always be available and so while announcing the reserves, terms like ‘measured’, ‘indicated’ and ‘inferred’ are prefixed cautiously to the estimates. The measured reserves are the most reliable and the inferred reserves are much less so.

It is not clear, therefore, how the CAG arrived at the astronomical figure of Rs.1.86 lakh crore as losses. Significantly, he has revised his own original estimate of Rs. 10.7 lakh crore.   Fixing the floor price of coal is also a very difficult job because of the complex geology and so his projected figure for the probable losses is indeed mindboggling. In any case, what have been allocated are only ‘captive’ coal blocks and mining has not been started in any of them except one.

If one looks at the various stages that have to be gone through while allocating the coal blocks, one finds that the parties that apply for allocation of blocks are required to establish their credentials for undertaking coal mining and a screening committee looks at the net-worth of the applicants, their track record, speed of execution, technical experience, etc. And the evaluations of the ministry concerned and the state governments are reportedly considered before finally allotting the blocks. Open auction appears to have been objected to by a few state governments and in any case bidding will be an open-ended affair and one will not know where it will stop.

In view of all these, it would have been better if the CAG had opined qualitatively that an open auction would have been more beneficial to the government than allocations, instead of quantifying the probable losses which is like entering an area where angels dread to tread.

The author was formerly Professor of Geology, IIT Bombay