Although current rules prohibit private players from acquiring mines to extract and sell coal in the open market, they have been using an innovative arrangement with state mining corporations to do the same.

Under this arrangement, the coal ministry awards a mine to a state mining corporation. The SMC, in turn, floats a joint venture in which it holds a majority stake as sweat equity, but makes no investment. A private player holds a minority stake, but brings in the entire investment and handles all operations.

If the contract terms are lopsided or if output is not monitored, such an arrangement lends itself to abuse, as the Karnataka Lokayukta exposed while investigating illegal iron-ore mining in the state. It said that "The interest of Mysore Minerals (a state PSU that had entered into a JV) was compromised to deprive the PSU of the contractual entitlements, dividends and profits due to one sided agreements, non revision or sub optimal revision of prices.”

Typically, in such a JV, three of the five directors on its board come from the SMC. But the entire operations team is from the private company. An ex-employee of Coal India speaking on the condition of anonymity said that "There is a risk that the private company can mine as much as it likes. It can give the SMC what it wants to show on its books and the rest is squared up outside the mine."

Mr Prashant Dhabre the chief accounts and finance officer of the Maharashtra State Mining Corporation which has three such JVs said that "We will keep tabs on the quality and quantity of coal mined.”

But a former chairman of Coal India, who did not want to be identified, feels a mere board presence won't ensure that. He said that "When the government is also investing money in the block, that is when the nominees are more accountable. In this (JV) arrangement, they think they are safe as there is no actual loss being suffered by the government."

Source - Economic Times

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