The joint ventures (JVs) various state utilities have signed with Eastern Minerals and Trading Agency (Emta) for mining the captive coal blocks allotted to them are costing their consumers dear.

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DNA has found that the utilities have been buying coal from the JVs — where Emta holds 74% equity — at exorbitant rates, with the end result that consumers are paying more for the power they produce, while the contractor, controlled by Ujjal Upadhyay-led Emta, laughs all the way to the bank.

Ballpark estimates suggest that in 2010-11 alone, Karnataka Power Corporation (KPCL) could have saved at least `135 crore, had it engaged some other contractor for mining. The money thus saved could have been passed on to consumers rather than allowed to fill the coffers of Upadhyay, whose rise into riches is legend in mining circles.

As per the JV agreement, Karnataka Emta was supposed to supply 4,200-4,949 kcal/kg useful heat value coal to KPCL for its Bellary power plant.

The JV outsourced the mining work to Emta for its Baranj I,II,III and IV coal patch, which has a geological reserve of 68.31 million tonne (mt), Kiloni with 39.51 mt and Manora Deep with 44.70 mt. The mines have a stripping ratio of 6, meaning the operator needs to remove 6 tonne of overburden, or earth, for every tonne of coal.

As per its balance sheet, Karnataka Emta produced 2.8 mt coal by spending `234.15 crore, or `823 per tonne.

That’s a whopping 136% more than what New Majri opencast mine of Western Coalfields — which lies in the vicinity of the Karnataka Emta mines and has, in fact, a higher stripping ratio of 7 — incurred on production.

New Majri produced 2.7 mt coal through a work contract awarded to Gujarat-based National Construction Company at just Rs99 crore, or Rs135 crore less than the Emta operated mine. The contractor here charged Rs47 per cubic metre for overburden removal and Rs21.89 per tonne for mining coal. The cost per tonne was Rs366.

Similarly, at WCL’s Navin Konada mine, which has a lower stripping ratio of 3.5, another contractor, Gujarat-based Sadbhav Engineering, produced 4.9 mt coal by charging Rs92 crore — at Rs46.88 per cubic metre for overburden removal and `25.92 per tonne of coal. The cost per tonne was Rs187 per tonne.

“If this huge difference in costs doesn’t amount to fleecing, what does?” asked an industry veteran. According to him, this has been going on for 6-7 years in the case of Karnataka Emta mines, 15 years for Bengal Emta and 12 years for Punjab Emta.

“It is strange that KPCL has picked the JV route for procuring coal rather than the contractual route, which is cheaper,” said a highly placed WCL official.

But Bikash Mukherjee, executive director, Emta, had a different take. “We are selling coal to KPCL at a discounted rate, linked with Coal India prices.”

The chief executive officer of a reputed global mining consultancy firm also raised serious questions on the Emta model. The whole model is flawed and shows favouritism as Emta is not acting as mine development operator (MDO) but working as the owner of the blocks since it owns majority stakes in the JV companies, he said. “Where is the check and balance on the cost and profit made per tonne by Emta?”

What’s more, in its pricing model, Emta has linked its selling cost to Coal India (CIL) notified prices.

“That’s mischievous, given that Coal India operates with over 3 lakh employees and has huge corporate social responsibility that jack up its production cost,” said the CEO.

Even Krishna Gupta, managing director, West Bengal Power Development Corporation, admitted that the current pricing model is flawed and said the West Bengal Power Development Corporation has taken steps to rectify this by suggesting Bengal EMTA Coal Ltd, the JV company, link its selling price to production cost rather than CIL notified price. “EMTA selling prices should be linked to its production cost that gives it a fixed return on its capital. Linking it to CIL notified base price is financially detrimental to state utilities,” he said, adding, the change in price base can be implemented only after it is ratified by both the companies.

The managing director of a coal mining company, which has bagged a coal block through the bidding process from a state mining company, ridiculed the way some state utilities have surrendered majority stake in the JV mining companies without calling bids and going through the right price discovery mechanism.

In sharp contrast to the state power utilities, many state mining corporations have become cash-rich by giving away mining rights after taking huge upfront payment as consideration fee.

Take for example Madhya Pradesh State Mining Corporation, which in 2009 invited bids for six coal blocks where ACC bagged four by quoting 2,000% over the prevailing royalty, corresponding to around `1,500 per tonne, as consideration fees. This implied that ACC will not only develop the coal block, investing all that was needed, but also pay `1,500 per tonne to the state corporation, and yet, hold just 49% stake in the JV company.

Among others, Gupta Coal had won Warora coal block in 2008 by assuring an upfront sweat equity of `17 per tonne to Maharashtra State Mining Corporation (MSMC), implying a payoff of over `122 crore for the 72 mt Warora mine. Even here, the private company holds just 49% equity in the mining JV.

Similarly, Sunil Hitech had offered `37 per tonne to MSMC in 2008, implying a payoff of over `111 crore for the 30 mt Adkoli block, holding just 49% in the mining JV.On its part, Lanco had offered a premium of `112 per tonne to Tamil Nadu Electricity Board and Maharashtra State Mining Corporation for bagging the MDO contract of the 1.2 billion tonne Gare Palma coal block in 2011.

“The joint ventures in Madhya Pradesh would give the state upwards of `800 crore a year as profit for the next 20 years, besides giving the government 51% equity, even though the investments would be made entirely by the private developer and that too from mines with total reserves of only 450 mt,” said an analyst at an energy-focused research house.

“Did the state utilities try to find out the valuation of the asset before giving away 74% stake in the JV companies?” he asked.