Promises, red tape and the vicious cycle of tendering in the coal sector – Pratim Ranjan Bose

Pratim - CopyHaving failed miserably in its attempt to push up coal production through the much hyped captive assets allocation route, the government has now shifted focus on the State-owned coal miners.

Tenders are floated at great haste either to learn new mining techniques or appoint mining contractors with a specific focus to step up investments in Indian mining sector.

Three cash-rich State-owned miners – Coal India, Singareni Collieries and Neyveli Lignite – will pump in Rs 56,000 crore, during the current Plan period ending in March 2017, coal minister Sriprakash Jaiswal recently announced.

The measures are enough to improve the sagging fundamentals of Indian coal sector, the government prefers to believe. Sadly, however, not many in the industry have much faith on such tall promises.

Amar Bhasin, senior executive of an Australia based mining contractor and equipment supplier feels the government should do better by granting PSU managers more freedom and removing the red tape.


Tendering – a vicious cycle

He has a point.

For last five or six years coal companies were making rounds across the world to identify suitable technologies, visiting facilities of equipment makers and inviting them to participate in tenders floated by miners.

While some of such purchases did take place. A large number of projects are in limbo, courtesy the bureaucratic red tape.

Bhasin, for example, wasted years in chasing one such contract floated by the Hyderabad based Singareni Collieries (SCCL), for underground mining equipment.

As in July this year, SCCL cancelled the Rs 20 crore tender, for the second time in last three years. While the company is now gearing up to invite fresh bids, the sharp devaluation of rupee (from Rs 60 to 65 a dollar) in August, may inflate the price of the same equipment by Rs 1.5 crore.

The opportunity cost is even bigger for Coal India. In 2007-08, when Indian currency was hovering at Rs 39-40, the company rolled out a multi billion dollar programme to buy hundreds of large sized shovels and dump trucks, so as to pace up coal production from its open cast mines.

Nearly six years down the line, CIL is not even half-way through the modernisation programme. It has acquired some shovels. But, they remain under utilised as contracts for heavy duty dump trucks are in perpetual loop of re-tendering.

One contract, for 240 tonne dump trucks, awarded to an American major could not be implemented. Another tender, valued at Rs 3000 crore as in June 2013, for acquisition of 190 tonne dump trucks was cancelled twice in last three years for reasons ranging from non-availability of a ‘last purchase price’ (LPP) or lack of competition.

There is no reference price (LPP) because CIL has never acquired such equipment! And, since CIL wanted rock bottom price, majority of suppliers opted out, except one. A Belarusian company decided to cut corners to the desired level. It was finally ruled out, due to lack of competition!

Save your skin first

Everyone knows indecision is costly. Yet, everyone goes by the rule book. Else an anonymous complaint may land at the desk of vigilance officer and, some politicians may give the necessary push to convert it into a CBI enquiry.

But, if you think, this reduces corruption. You may be living in a fool’s world.

Tender, small or big, floated by coal companies are cash cows to politics. And, they are unlikely to let you work, till contracts are awarded to the near and dear ones. And, if the rival camps squabble for share of booty, as they often do, management’s decisions will be challenged at the court. Either way projects will suffer.

“The world may sneer at us. But, that’s the way we do business,” a senior coal official once heard saying in private.

The hopelessness is palpable across the industry. The procedures laid out by the country requires State-owned companies to invite bids even for smallest of small purchases running into a few lakhs of rupees for replenishing the medicine stock in a hospital or appointing a big value project contractor.

It was expected to ensure transparency in financial transactions. In the process, it has proved itself to be another red tape, if not a nexus, that takes months or years to be negotiated.

No public sector company is free from this evil. But, it may be a subject of research interest, if the coal sector – arguably the country’s most important plank for growth – is one of the worst victims of it all.

Nexus intensified

The intensity of this nexus has only increased with the rising importance of coal in the last one decade.

Gone are the days when coal was a near exclusive domain on regional politics and local mafias. Today a wide cross section of business and politics in India and abroad has interests in India’s state-owned coal sector.

Caught in the push and pull of ‘interests’, the miners are either expected to comply (and be rewarded, by say repeated board level extensions ignoring complaints) or take recourse of bureaucracy to avoid another career threatening enquiry. Projects are important but, not more important than saving your own job.

There are of course a third kind, who could successfully use bureaucracy in bringing some benefits to the country.

For example a CIL subsidiary successfully re-tendered a large mining contract, side stepping contradictory recommendations from high offices, to bring down the cost of coal production by more than 50 per cent. But, they are merely exceptions. And, exceptions don’t prove a rule.


Pratim Ranjan Bose is a senior journalist with one of the leading pink papers. This article is being reproduced from his linkedin page: