kld state, market & the crisis in raniganj coalbelt

8/7/2019 KLD State, Market & the Crisis in Raniganj Coalbelt

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Economic and Political Weekly October 9, 19992952

UNTIL the 1960s a resource managementdecision addressed such questions aswhether a project was technically feasible,financially viable and legally permissible.Since then a paradigm shift has occurred.Instead of pure cost-benefit analysis ineconomic or technical terms, resourceplanners all over the world now include‘impacts’ – both environmental and social– in their analyses. Therefore, when onecomes across an old-fashioned economic

cost-benefit analysis these days, one raisesone’s eyebrows.However, the matter assumes serious

proportions when a public-sector com-pany uses such a ‘report’ as justificationfor laying off as many as 72,000 employ-ees. It then becomes imperative to take acloser look at the report and the circum-stances that produced it. Most of all, itrequires an understanding of how the reportis intended to be used – as a weaponagainst the popular will – and of thealternatives that were feasible for theinterest groups involved. However, let usfirst take a brief look at developments in

the coal mining sector all over the worldand the response of the state-owned coalmining industry of India to these develop-ments.

Competition, declining mineral grades,higher treatment costs, privatisation andrestructuring are issues that have beenputting pressure on mining companies toreduce costs and improve productivity.Employment is falling in many miningareas – as a direct result of better produc-tivity, radical restructuring and privati-sation. Not only are these changes displac-ing mine workers from employment; thoseremaining in the industry are having towork in a very different way, a way whichcalls for more skills and greater flexibility.Therefore, finding the right balance be-tween the desire of mining companies tocut costs and that of workers to safeguardtheir jobs has become a major issuethroughout the world of mining.

Since 1988 the coal mining industriesin most of the world’s coal-producingcountries have undergone considerablechange. The driving forces have beendifferent and the results varied, but the

central objective has been to make theindustry more competitive, more self-sustaining and more viable as policychanges in the areas of technology, theenvironment and energy impose consid-erable burdens on the production and useof coal.

The essential objectives of restructur-ing, according to the International LabourOrganisation (ILO) are to ensure energysecurity and the meeting of demand for

coal – rather than attaining a predeter-mined, inflexible production target – whileachieving increased productivity, lowercosts, higher quality and greater workersafety and lessening the impact of miningon the environment. The ILO recognisesthat rationalisation will necessitate clo-sure of mines, freeing of coal imports, areview of subsidies, diversion of invest-ment from non-coal-mining operationsand, in some cases, moves towardsprivatisation. It has outlined two comple-mentary lines of action: ensuring that anadequate safety net is in place and pro-moting non-coal-related activities in the

regions concerned.The Indian coal industry is now caught

between the welfare approach of the stateand the effects of the market post-liberalisation. It has begun to use recentchanges in a way that is quite in contrastto what the ILO recommends. Coal India(CIL), which controls all major manage-ment decisions, including coal pricing,transport and allocation, decided quitesome time ago to impart greater thrust toopen-cast mining to lower the cost of production and increase output quickly.It has initiated a technology change whichhas helped increase production from about90 million tonnes in 1977 over 250 milliontonnes per year at present.

This paper looks at the existing situationin Eastern Coalfields (ECL) and discussesthe nature and purpose of a restructuringplan prepared by the Industrial Credit andInvestment Corporation of India (ICICI)which apparently falls in line with develop-ments at the international level. It ques-tions the viability of applying such grossgeneralisations in any context. It alsoargues that if environmental protection

were given its due, open-cast collieries,too, may not seem terribly attractive froman economic point of view. The paper triesto establish that the losses of ECL areconcentrated elsewhere – not in the under-ground mines – and that instead of downsizing its operations, the companyshould clean up its act and look into themanner in which it has conducted itsbusiness over the years if it is to regainprofitability.

One of the 11 subsidiaries of CIL, ECLhad been making huge losses ever sinceits inception and was becoming a burdenon the parent body. In 1997 it was referredto the Board of Industrial and FinancialReconstruction (BIFR) under the Sick Industrial Companies Act (SICA), butthrough financial restructuring it was ableto avert a crisis by a whisker. Unable tosolve its chronic ailments, however, ECLhas been handing over collieries on a platterto private contractors over the last coupleof years. Several collieries in the Raniganjregion of West Bengal have already beengiven over to private contractors to oper-

ate. In an attempt to formalise the process,the company has now undertaken a com-plex and convoluted exercise the dubiousintentions behind which are not apparentto the casual observer. It is only after acloser look at the region, the coal miningindustry and the manner of implementa-tion and the cost of restructuring plans thatone can see the intentions for what theyare.

In July 1997, CIL approached the ICICIfor the development of a restructuring andrevival plan for ECL. This plan (popularlycalled the ICICI report) was presented toCIL in August 1998. At a meeting inCalcutta in the last week of October, it wasrecommended to ECL. It was then sent tothe coal and labour ministries for finalapproval. On the basis of this report ECLplans to close down 64 mines, most of them located in the Raniganj region of West Bengal, and retrench nearly 72,000employees working in these mines. In1997-98 ECL’s cumulative loss from the64 mines, which produced 7 million tonnesof coal, was Rs 4,200 million. But beforewe look at the contents of the ICICI report,

State, Market and the Crisis in Raniganj Coal BeltKuntala Lahiri-Dutt

The recent decision to close down 64 ‘uneconomic’ collieries in ECL’s jurisdiction would render 72,000

people unemployed, besides hurting the economy of the Raniganj coal belt. The decision was apparently

triggered by an ICICI report which has found that ECL’s losses are concentrated in its underground mines.

This article takes issue with the report and suggests that the proposed closure could be the first step towards privatisation of coal mining.




nor equipment can be deployed on apermanent or a cost-efficient basis, thesemines are bound to be of an ephemeralnature. The ICICI report says: “In orderto fully exploit the economic benefitswithin the leasehold area, exploitation of these patches may be important. However,such operations can be undertaken more

economically on a contractual basis.” ECLseems to have taken its cue from this point.The costs of operating a mine fall under

several heads: wages, power, timber,petroleum, oil and lubricants (POL), ex-plosives and stowing. In the Raniganj beltthere is a heavy burden of wage cost, asis evident from Table 1.

IMPROVING PRODUCTIVITY

Let us now see what measures ECL hasadopted so far to initiate a turnaround:

(1) The adoption of an exercise in whichthe manpower requirement of each minehas been assessed and 12,580 workers

have been identified as ‘surplus’.(2) The introduction of a voluntary

retirement scheme (VRS) under which anemployee who has completed 10 years of service or 40 years of age is given a ‘goldenhandshake’.

The VRS has not been every successful.This is mainly because alternative avenuesof employment in the region have beenmore or less destroyed. Traditional agri-culture and forest-based activities havedecayed to an alarming extent. Moreover,a sizeable number of ECL employees aremigrant workers who have no attachmentto agriculture. The indigenous labourerhas lost his connection with the local eco-system due to the degradation of environ-mental resources.

The large manufacturing sector of theregion – steel plants, locomotive works,etc – is oversaturated and throws up fewemployment opportunities. Several me-dium-sized units, such as the paper millin Raniganj and the Sen-Raleigh factory,have closed down in the last couple of decades, further restricting the job marketin the modern sector.

Why are so many workers considered‘surplus’? Unskilled labourers are em-

ployed in eastern India collieries, and bythe time they develop some level of oc-cupational skill (ordinarily in 10 to 12years), their health deteriorates to such anextent that they become redundant labour.Rapid deterioration of workers’ health isalso related to poor conditions in theworking environment, and ECL has so farnot initiated any organised enquiry intothis matter. Besides being considered‘surplus’ on health grounds, a worker maycome under that category when the spe-

cific skills acquired by him become redun-dant due to the introduction of new tech-nology.

Finally, ECL considers a large numberof women workers ‘surplus’. It has in-creasingly shown a gender bias. Many of the women workers were originally em-ployed on their own merit. But such cases

of direct employment of women are be-coming rare, and ECL now actively dis-courages employment of women even oncompassionate grounds – as when a malemember of the family dies while workingfor the company.

Mechanisation has been initiated parti-cularly in the OCPs. A high degree of mechanisation is not possible in older under-ground mines as the cost of productionwould far exceed the sales realisation.Much of the mechanisation technologythat ECL employs was imported from coal-producing developed countries. Totaldependence on imported technology has

not been quite successful in ECL, wherethe strata conditions are different fromthose existing in the advanced countries.

Kottadih, for example, was a flagshipproject of ECL assisted by French tech-nology of underground longwall powered-support operation. In this kind of opera-tion, six to eight huge steel pillars holdthe roof while giant shearers raze the coalseams, and the entire process is controlledfrom the surface by computers. Threefactors are of great importance whileconsidering the selection of such techno-logy: the nature (thickness and weight) of the overburden, the nature of the surfaceland use – as the land is allowed to subsideafter mining, displacement of communi-ties and loss of cultivable land is inevi-table – and the number of steel pillarswhich support the roof. On April 4, 1997,the roof of the mine collapsed over astretch of about 5,600 feet, killing threepeople and injuring six others, and de-stroying machinery worth millions of rupees. The project is dead for the timebeing.

Another factor to rekon with is that theuse of cutting and loading machines inunderground mines using longwall tech-

nology generates enormous amounts of dust and noise, which pollutes the mineenvironment and poses safety and healthhazards.

Lastly, some technologies are indivis-ible and hence may create other problemsin turn. For example, in an open-cast minethere may be an 8-foot-thick layer of coalon top and a 20-foot-thick layer at a lowerlevel. In Sangramgarh (Samdi), this 8-footlayer has been left out, and mechanisedoperations have begun to exploit the lower

layer, which is better suited for heavymachines. The exposed layer near theground surface has attracted the localpeople, who have excavated coal illegallyand left honeycomb-like holes. Bothoperations go on simultaneously.

Moreover, unauthorised mining goes onunder the nose of the company in several

other places of the region, and little hasbeen done to solve the problem so farbesides some exchanges of letters betweenECL and district administrators. As forpilferage of coal from ECL collieries, ithas gone so far that exports to nearbycountries like Bangladesh and Nepal havebeen severely affected.

From Durgapur to the Barakar townshipthere is no retail coal outlet for the do-mestic consumers in the region. Thecompany expects the district administra-tion to protect its property, and itself doeslittle to control unlawful activities in spiteof maintaining a large retinue of security

guards. Stricter policing by the companycould have solved many much problems.Also, a combination of indigenouslyavailable technologies rather than importedtechnology could have been the answerin a case like Sangramgarh.

SOME NEGLECTED REALITIES

Having considered the nature of theproblems of ECL and their background,more specifically in relation to the 64collieries proposed to be closed down, letus now go back to the ICICI report. Thecorporation has divided the 15 miningareas under ECL into four groups basedon their 1997-98 economic performance.Group I:- profit-making, high-capacityopen-cast mines: Raj Mahal, SonepurBazari and Santhal Pargana areas.Group II:- areas with profit-earning po-tential: Kajora, Bankola, Kenda andKunustoria areas.Group III:- high-capacity, longwall mines:Jhanjra and Kottadih areas.Group IV:- mines with difficult work-ing conditions (64): Satgram, Sripur,Salanpur, Sodepur, Mugma, and Panda-veswar areas.

TABLE 1: COSTS OF MINES UNDER ECL(Per cent of sale value)

Underground Open-Cast

Wages 102.51 17.17Power 17.22 3.51Stores 7.93 14.44Transport 2.64 1.80Administrative exp 7.07 4.81Miscellaneous exp 9.17 5.64Interest exp 5.22 7.82Depreciation 10.20 16.27Total 161.96 71.27



Economic and Political Weekly October 9, 1999 2955

This classification was done on the basisof two indices: a ‘competitive index’ (profitmargins before interest and depreciationdivided by profit margins after interestand depreciation), and ‘attractivenessindex’ (assessed capacity per employeeper year divided by production value peremployee). The report does not explain

why these indices were preferred.The cost structures of the loss-makingmines vary. The highest losses are madeby the Sripur mine followed by Ningah,Nutandanga, Temehani, New Kenda,Kalipahara, Konardihi, Ratibati-R, andChinakuri 1. To produce 9,16,920 tonnesof coal, the percentage shares of costs inthese mines is as follows: wages 66.08 percent, explosives 1.2 per cent, timber 0.84per cent, POL 0.4 per cent, others 3.5 percent and sand stowing 27.93 per cent.

The stowing of sand in the undergroundmines is apparently the second largesthead of expenditure. There is, however,

no way to check whether or not the amountof sand claimed to have been stowed inunderground collieries has actually beenstowed. Some incidents of subsidence inand around recent workings have alleg-edly been due to negligence in filling upunderground cavities. Table 2 extractedfrom ECL and JK Ropeways data sourcesclearly shows the discrepancy betweenthe amounts of coal raised and the amountsof sand stowed.

Apparently, more sand has been stowedthan coal raised; the data reveals that theentire business of sand stowing in under-ground trenches is a farce, an eyewash of the grossest nature, and reveals the hypo-critical attitude of ECL to environmentalconcerns. The sand stowing businessbenefits neither the region nor the under-ground collieries. But it makes the ‘con-tractor raj’ powerful. However, whathappens is that the underground mines‘apparently’ lose economic viability interms of purely financial cost-benefitanalysis because of this added cost of sandstowing in underground mines. The ICICIreport completely ignores this aspect.

ECL’s claims of adequately stowing theunderground voids have to be taken with

a pinch of salt in view also of the fact thatwhereas a pre-nationalisation report iden-tified 22 areas as ‘unsafe’, a 1997 reportof the Director General of Mines Safety(DGMS) has marked 171 areas as unstableand unsafe for human habitation. A physi-cal survey of these areas would helpestablish how many of them are post-nationalisation workings.

Taking the logic a little further, if evena semblance of the environmental care andthe protective measures of land reclama-

tion and rehabilitation that are followedin other coal-producing countries weretaken up in eastern Indian open-cast mines,instead of leaving gaping holes and hugeoverburden dumps, the profitability of OCPs is bound to be lower. Since thereis no effective environmental planningand supervision in the true sense of the

terms, the OCPs can get away with theholes and dumps just as the undergroundmines are sealed without being properlyfilled. This author’s contention here is thatthe relative profitability of OCPs is only‘apparent’. Once the long-term environ-mental and social costs – Sonepur Bazariand Kottadih have caused large-scaledisplacements of local populations – aretaken into consideration, the open-castmines too would not come across as ter-ribly ‘attractive’.

Finally, any decision to close downunderground mines will also have to beplaced in a futuristic perspective. Mining

operations would compulsorily turn todeeper horizons because of the exhaustionwithin two decades of deposits that areshallow and comparatively easy to mine.Underground mining, therefore, is theinevitable future of the coal industry.Handing over these mines to privateoperators on the ground that they are‘uneconomic’ would be an extremely hastydecision.

STATE GOVERNMENT CESS

The reasons for the chronic sickness of ECL are several, the most important of them being the coal cess imposed by theWest Bengal government. Whereas in otherstates only a royalty is imposed on coal,and that amounts to an average of Rs 135per tonne, the West Bengal governmentimposed a cess of 47.5 per cent ad valoremon coal produced in the state. Accordingto entry 49 in the state list in the Consti-

tution, a state can charge cess on theland being used for mining. Moreover,according to the Mines and Minerals Regu-lation Act, a state that owns a coal beltis entitled to royalty. Coal cess, almost likedirect tax, is calculated as part of theannual value of the land where a mine islocated.

The revenue thus earned from cess,according to the West Bengal govern-ment, is spent on employment generationand welfare, and also on paying for thecoal purchased. The burden is in fact passedon to the consumers. The state earnedRs 610.05 crore in 1997-98. However, thestate government is yet to receive overRs 1,000 crore on account of cess fromthe central government. Even the provi-dent fund dues of the employees have notbeen paid.

After the hue and cry over the CIL’sdecision to close down mines, the stategovernment, however, reduced the coal

cess to 25 per cent, acknowledging aloss of Rs 250 crore to the state exche-quer. Yet the amount remains higher thanthe average royalty of 17 per cent leviedby other states, and hence ECL coal remainsthe costliest in the country. So far, eventhe state government has not thought of ploughing the incomes from cess intothe region through innovative planningmeasures.

The grossest flaw in the ICICI report isthat it is cast on purely economic termswith the hidden assumption that bettertechnological inputs will result in improvedeconomic performance. At one point of the report, the ICICI does say that fromthe ‘socio-economic perspective’, it is ‘notadvisable to close down the mines undergroup IV category’. But there is nothingmore on this topic as if the fate of nearly72,000 people does not matter. Contrastthis with the scene in Germany. That

TABLE 2: DIFFERENCE BETWEEN SAND STOWED AND COAL EXTRACTED

(Tonnes)

Area April 1995-November 1995 Difference April 1996-November 1996 DifferenceSand Coal Sand Over Sand Coal Sand Over

Stowed Raised Coal Stowed Raised Coal

East Division

Kunustoria 15,30,173.7 3,48,821 11,81,352.7 15,46,749.6 3,53,507 11,93,242.6Kajora 7,98,342.6 2,00,523 5,97,819.6 9,70,899.6 2,09,084 7,61,815.6Kenda 3,00,105.3 44,667 2,55,438.3 3,17,219.1 49,370 2,67,849.1Bankola 9,22,102.5 1,93,080 7,29,022.5 1,109,559 2,31,311 8,78,248Pandaveswar 8,41,051.2 1,94,014 6,47,037.2 11,51,244.6 2,39,769 9,11,475.6Total (ED) 43,91,775.3 9,81,105 34,10,670.3 50,95,671.9 10,83,041 40,12,630.9

West DivisionSodepur 5,00,379 1,38,253 3,62,126 6,18,380.4 1,47,216 4,71,164.4Sripur 4,98,319.8 87,966 4,10,353.8 4,60,623.9 92,863 3,67,760.9Satgram 13,10,238.6 2,67,004 10,43,234.6 10,91,887.5 2,60,233 8,31,654.5Total (WD) 23,08,937.4 4,93,223 18,15,714.4 21,70,891.8 5,00,312 16,70,579.8Total (ECL) 67,00,712.7 14,74,328 52,26,384.7 72,66,563.7 15,83,353 56,83,210.7

Source: J K Ropeways and ECL




country’s coal production meets only 20per cent of its total demand. Still, coalmining gets a state subsidy of more than6 billion marks in the face of populardemand.

The ICICI report is full of such sweep-ing statements as: “The predominance of labour-intensive underground mining

operations, coupled with the resultant lowproductivity, is clearly reflected in the lowprofitability of the operations at ECL”.The report shows incomplete comprehen-sion of both the problems it has set outto solve and the snow-balling effects thatwould be triggered by adopting the strat-egies suggested by it.

As an afterthought, the report mentionsthat the “option of phasing out these mineswould not be practical from the implemen-tation point of view”. What does thissignify?

It would seem that ECL is fascinatedwith machines and entirely impatient with

human beings. Its apparent approach is todo away with people whether by displac-ing them in mining expansion, or bysacking them en masse, in an attempt toattain economic efficiency. This attitudedoes not sit comfortably with a publicsector company. It makes even a laymansuspect that ECL intends to dismantleitself.

In the wake of liberalisation, there havebeen subtle and not-so-subtle attempts fromvarious quarters to attract private capitalfrom within India and abroad to the coalmining sector. The ICICI report, insteadof honestly delineating a plan of re-structuring and revival, has acted as aninstrument for the justification of mineclosures. The coal industry itself is under-going a restructuring and that CIL’spriorities lie elsewhere is borne out bythe fact that it is importing 25 milliontonnes of non-coking coal from variouscountries like Australia, Indonesia andSouth Africa – another hasty and unnec-essary measure.

TODAY AND TOMORROW

Recent developments are quite intrigu-ing. For one thing, ECL shelved its inten-

tions of mine closure and retrenchment fora while to work on a revival plan toprescribe a turnaround package for thecompany. Retrenchment was ruled out forthe time being. However, since overRs 4,000 million has been already in-vested in ECL since nationalisation in1972-73, the question of any further capi-tal infusion does not seem a possibility.All major trade unions in ECL and theCoal Mines Officers’ Association, India(CMOA) have hailed the decision, but

the closure of some nonviable mines, mostof them in West Bengal, is inevitable.Even with a popularised VRS, the impacton the economy of the Raniganj belt willbe hard.

Over a recent span of a few months,moreover, the productivity of ECL in-creased to the tune of 19 per cent – an

unprecedented event for this company.This has been made possible throughimproved motivation at all levels – fromthe general ‘majdoor’ to the generalmanager – and the trade unions as wellas the officers’ union have played a sig-nificant role in this turnaround. This aloneis evidence enough that what has beenlacking so far is proper motivation andhuman resource development, areas thathave never been taken seriously by theECL and CIL bosses.

The entire chapter has shaken the verycore of the existence of the Raniganj belt– one of the better-off areas of West Bengal.

It has brought into focus the old problemof non-performance of the state sector andhighlights several facets – some specificto the Indian coal mining industry andsome specific to the region. In recent years,liberalisation of the economy has beenviewed as a panacea, sometimes even atthe cost of the national interest. It seemsthat the coal sector is all set to open upto foreign private capital since ECL isunable to find a solution to its problems– created largely by itself.

The ICICI report, looking only at theeconomics of coal mining, has intention-ally or unintentionally fallen in line withthe scheme of things at quite the right time.An example: nowhere has the reportmentioned the cumulative loss to ECLfrom the underground void-subsidence-compensation cycle, leave alone measureit, thus creating the impression that clos-ing the underground mines would be thefinal solution.

In its 25 years or so of existence, ECLhas never thought of setting up its ownresearch and development (R and D)establishment. It has at all times beenlured by the hi-tech sophistication of coal mining in other countries. The results

have often been disastrous. Machineryhas been left unused, rusted machineshave failed to perform, millions of rupeeshave gone down the drain. Unauthorised,informal coal mining is rampant in theregion, and often goes on right underthe nose of the mining authority. Sealedand abandoned collieries are broken openand coal from pillars and sidewalls isextracted without resort to sand filling. Inopen-cast mines too theft has become afact of life.

The basic problem is that ECL has nevertried to set its priorities right and neverlooked beyond immediate economic con-cerns. The environmental problems of theregion, as a result, have reached crisislevels. On winter evenings, hundreds of thousands of knee-high stacks of stolencoal go up in flames along the streets and

in residential yards. The smoke floats ateye level – as it is unable to rise againstthe heavy air – making a visitor to the areawonder how a human being can breathesuch air. The dispossessed peasants taketo ‘illegal’ mining. The mafia is moreinvolved in illegal coal trade.

Thus, there are intricate environmentaland human dimensions of the problems of the region, and a simple cost-benefitanalysis is not adequate at all. Anothergrey area that ECL has overlooked is thathuman productivity is low because of lack of skills and poor health. Building uphuman resource potential has never been

one of the company’s strong points. Thestress on open-cast mines at the cost of underground ones also needs closer ex-amination. How far is the viability of open-cast projects real and how far only appar-ent because adequate measures of envi-ronmental protection are side-tracked?Finally, this whole chapter has once againbrought out of the closet some old issues:the question of a state’s right to earnrevenue on its natural resources, coalpricing policy, etc.

Given a scenario of foreign privatecompanies operating in the region, onecan only try to visualise the shape of thingsto come in a limited way. There is no doubtthat state policing to protect the environ-ment and the rights of disadvantagedgroups would have to be at a very highlevel. Given the state of Indian corruptionany hope for such a state of affairs wouldbe illusory. And given India’s dismal track record in managing environmental mattersthrough state initiative, one shudders tothink what these private/foreign companieswould do once they enter the coal miningregions. Many old inhabitants of the regionhave not forgotten the days of ‘companyraj’, when the main objective of the small

entrepreneurs was ‘more hole, more coal’.ECL has proved no different from its

predecessors with regard to environmen-tal matters. Instead of trying to clean upits act, it now wishes to liquidate itself andhand the region over to a new breed of profit-seekers. While transnational min-ing companies, forced by governments,follow very strict environmental guide-lines on their home turfs, there is noguarantee that they would do so in Indiatoo. Remember Bhopal?

kld state, market & the crisis in raniganj coalbelt

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