Allocation of Coal to Small Scale Industries

Another example of India’s fascinating center/periphery patronage system comes from today’s government press releases talking about the India’s relatively recent New Coal Distribution Policy:

The New Coal Distribution Policy of October 2007, inter-alia, provides for distribution of coal to the consumers in small and medium sectors across the country based on:

1) those whose requirement is less than 4200 tonnes per annum or
2) those who are otherwise not having access to purchase coal or
3) those who conclude Fuel Supply Agreement (FSA)

The quantity earmarked for distribution to such small and medium consumers is eight million tonnes annually. The earmarked quantity is to be distributed through State Government Agencies/Central Government Agencies or Industries Associations so notified by the respective State Governments, for which the agency/association so notified is required to enter into Fuel Supply Agreement (FSA) with the concerned coal company.

The allocation of the quantity amongst the States is done on the basis of their consumption pattern in the past. This was informed by Shri Pratik Prakashbapu Patil, Minister of State in the Ministry of Coal while replying a written question in Lok Sabha today.

The Minister said that the concerned State Government has to ensure that the legitimate coal requirements of small and medium consumers located in their State are properly analysed and suitable action is taken for meeting the requirements, to the extent feasible. No specific complaint from the state nominated agencies about closure of any small and medium industry due to non-availability of coal has been reported.

For those following India, this new policy was created as a way to help fight the coal mafias that were taking advantage of the prior coal rationing policy and selling coal on the black market.

However, recently (2011) the new policy was criticized as being in need of reform as increasing demands from the power sector were still making it impossible to provide additional coal to other sectors. As reported in the Indian Express last year,

Due to the negative balance of coal, the Standing Committee on Linkage for steel and cement could not be convened for the past three years … Policy mandates coal companies meet 100 per cent of the requirements from the defence and railway sectors at notified price, while meeting 75 per cent of the quantity of normative requirements of other linked consumers through Fuel Supply Agreements (FSAs). Under the policy Letters of Assurances are issued and all core and non-core sectors are required to enter into FSAs with the companies (also as a way to curb black market theft).

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