The coal ministry has asked all the coal-bearing states to plug existing loopholes in the process of allocation and development of reserves as part of the guidelines being finalised for competitive bidding of coal blocks. This includes limiting private ownership in joint ventures (JVs) of state mining corporations to less than 50 per cent, allowing such JVs to only those companies that have end-use projects and following open bidding for selection of private mine operators. The move is aimed at cleaning up the system tainted by allegations of massive corruption in allocation and use of coal blocks. The ministry has also abolished free-of-cost allocation of reserves by charging a “reserve price” from government companies in lieu of allocated reserves. “The ministry’s latest instruction to state governments is based on the past experience of cases, where private companies were handed out majority stakes in mining entities set up as Jvs by state mining corporations. This is a violation of the Coal Mines Nationalization (CMN) Act of 1973,” a senior official close to the development told Business Standard. According to the CMN Act, only a government-owned company can mine and sell coal. CLEANING THE HOUSE Coal ministry asks states to induce transparency in block allocation and usage Seeks states’ views on limiting private ownership in JVs to less than 50 per cent, allowing private partnerships only with firms which have end-use projects, following bidding for selecting MDOs Move is third in a series of steps as part of the clean-up drive in the aftermath of coal scam Few state mining companies had handed out majority stakes to private companies in JVs Ministry expects final guidelines for auctioning to be ready by month end, bidding to begin by year end A case in point is the Orissa Mining Corporation’s JV with Delhi-based Sainik Mining & Allied Services Ltd (SMASL) for developing the Utkal-D block allocated to OMC in 2003. While SMASL had 74 per cent stake in the JV, the state-owned mining PSU held 26 per cent. The equity pattern arising from the ceding of majority stake by OMC had drawn flak from the ministry. “The ministry had later asked OMC to raise its stake to at least 51 per cent,” the official said. Another case is the West Bengal Power Development Corporation’s JV with private company EMTA Coal Ltd for developing five blocks – Tara East and Tara West in Burdwan, Borjore and Gangaramchak in Birbhum and Pakur in Jharkhand. The JV entity, Bengal EMTA Coal Mines Ltd, had EMTA enjoying 74 per cent stake and state government’s power company holding 20 per cent while the rest 6 per cent is held by Durgapur Projects Ltd. Significantly, the coal ministry's stand on the matter of private stake in JVs is in divergence with the law ministry's opinion. The official informed, in its opinion given to the coal ministry on the issue, the law ministry opined that it might not be necessary for PSUs to have controlling stake in JVs with private firms as an entity with even 26 per cent stake by the government could be called a “government company”. The government’s other instruction to states, relating to Mine Development Operators (MDOs), is aimed at avoiding any controversy over the selection of private firms. Outsourcing of mine operations to an MDO is a widely followed practice by PSUs operating in the coal sector. Outsourcing has, in fact, allowed state-owned Coal India Ltd to save its profit margin against its own relatively less efficient workforce. The first “course-correction” move, reported by Business Standard on September 12, was to make it mandatory for captive mining companies to participate in tariff-based bidding for power projects.