Privatisation of Coal Industry: A Review


Patch deposits are layers of mineral resources, scattered here and there due to geological reasons. The nationalised coal company, Eastern Coal Limited (ECL), had taken the decision to appoint contractors for the production of coal from ten such coal patches. We had got this news from established English and Bengali dailies long ago. These dailies are spreading the rumour that the production of coal from these patches with the help of contractors would save ECL from incurring great financial loss; as a result, ECL would be resurrected economically and be able to get out of BIFR in seven years. The journal Udyog (Asansol), however, is extremely suspicious of this kind of news. That is why their representative met the ECL authority, the established trade union leaders of the ECL, and the labourers. After having talked to them and having given full consideration to what they had to say, the reporter has written this article.

We all know that the process of nationalisation of the coal industry had begun in the decade of the fifties and was completed in 1973. The following reasons lay behind nationalisation:

For all these reasons the coking coal collieries were nationalised in 1971, and the non-coking ones in 1973. Subsequently, in accordance with the 1975 law of nationalisation of coal mines, all coking and non-coking collieries were merged into the Coal India Ltd. (or CIL) on 1 November 1975. Under the CIL, a planning division, called CMPDI, was opened. It was entrusted with the task of manufacturing and preserving coal in a scientific manner.

But a plan can only succeed if it is implemented properly. Also the materialisation of a plan depends on effective leadership. After the industrialisation of the coal industry, the responsibility for implementing the plans were given to people, the majority of whom had worked in small collieries before nationalisation. Therefore, they had the experience required for organised planning and implementing the plans in a huge field like that of Coal India after nationalisation. However, from the time of nationalisation, the CMPDI has been making massive and ambitious plans for the implementation of which the planners have no responsibility. As a result, many ambitious plans have been formed which are completely unsuccessful from the point of view of economics or workmanship. Such plans have resulted in a net loss of Rs 290 crores and a net deficit of Rs 2234.47 crores for ECL up to the present. While in 1974-75 ECL’s potential for production had been estimated at 29.42% (the highest among all companies) of India’s entire production of coal, by 1994-95, ECL’s production potential declined to 11.4% of the country’s production. If we wish to ascertain whether outsourcing would be able to bring ECL out of this morass, we would have to see why the company is suffering such a great loss.

The first reason is the negligence shown in reconstructing and reorganising old mines

The chief aim of nationalisation was to ensure increased production of coal. At that time more emphasis was placed on new projects than on reverting to old mines for the purpose of increasing production. Although there were sufficient coal deposits in the old mines, no effort was made to reconstruct the old mines. Very little money, in fact much less than necessary, was invested in the old mines. From the time of nationalisation up to the present, every year, Rs 30 per ton has been the capital investment in the underground mines. Out of this, Rs 20 are for mine investment whereas the rest is for care and structural preservation. As a result, despite the presence of plenty of deposits of coal in the underground mines, mine development, as much as necessary, is not possible. Even the outdated, useless machines, are not replaced. That is why even maintaining the existing rates of production, let alone increasing production, is not possible. However, the productivity of the old mines could have been improved by much less capital than was necessary for undertaking the new project. Therefore, the coal company has made a big mistake by neglecting the prospect of increasing the productivity of the old mines at relatively lesser cost.

The second reason is the use of capital-intensive projects dependent on foreign technology

On the one hand, the old mines, which had productive potential, were neglected. On the other hand, a great deal of emphasis was placed on new projects requiring foreign technology. In many cases, the use of foreign technology, imported machines, and foreign assistance had led to an increase in the cost of production. In such cases, if Indian engineers had devised projects, production would have involved much lower costs. One could use the example of Rajmahal, an important project of the ECL. It was working with the aid of the Canadian Corporation. Every year, a sum of Rs 9667 million had been employed for the production of 10.50 metric tons. The ‘steeping ratio’ of this OCP was 1.57 cubic metres per ton. The project used a dozer of 20 cubic metres and a dumper of 170 tons. But, in the case of NCL’s Jayanta OCP, despite the ‘steeping ratio’ being higher (2.6 cubic metres per ton), the use of a lower capacity dumper has led to the production of 8 to 10 million tons of coal, every year. While the depreciation value of the expensive machines of Rajmahal project is much more, their risk is also greater.

On the one hand, the mine technicians of India do not have enough acquaintance with ultra-modern western technology. On the other hand, foreigners are eager to sell their technology and machines. They are not responsible for judging how far their technology suits the geological conditions of this country. That is why after selling their technology and patching up a project, the foreigners leave. Khotadih is a striking instance of this practice. In Khotadih, the mine had not been properly surveyed. The capability index had not been assessed properly. A hydraulic support strong enough to bear the roof load over the coal layers was not installed. A relatively weak support was installed and the Langwal process was used for production. Within a few days of the beginning, there was an accident. Eighteen years ago, the use of the Langwal process was discussed in the context of the Satgram project, implemented with Polish assistance. The machines have been brought. It is said that there is waterlogging in the abandoned mine over the coal layer. A similar situation had occurred in Shitalpur Colliery. In this way, the use of new techniques – Langwal mining, mechanized board and pillar (in this SDL and LHD machines are used) etc. – has involved an expenditure of crores of rupees. But in this way manufacturing expenditure has risen. In many cases, plans have been made and tenders have been called although the usefulness of these plans had not been ascertained before. Contracts have been allocated, and coal-handling plants worth crores of rupees had been bought. Although Langwal mining could only manage to limp forward, the new technique has been adopted at J. K. Nagar Project, Satgram Project, Vanora West Block etc. In this way, we see that from the time of nationalisation, the coal company had made a market for new technology by employing a great deal of national capital. However, the authorities have no useful ideas about the planned production of coal from the underground mines. Instead of creating new ‘districts’ in the underground mines or opening new mines, the authorities are only interested in raising the production of coal in any haphazard fashion. The table below gives an estimate of the productivity of the underground mines, 25-30 years after nationalisation.




Open Cast

2.66 Million Ton (11%)

16.226 Million Ton (59%)


20.50 Million Ton (89%)

10.953 Million Ton (41%)


23.16 Million Ton

27.18 Million Ton

In order to supplement this massive reduction in the production of coal in the underground mines, the coal company has talked of various schemes. A large sum of money has been spent for the implementation of these plans. In reality what has happened is a reduction in average daily production. In the last ten years, ECL has spent Rs 3600 crores in development projects. Out of that Rs 2000 crores have been spent on five major products. Two of these are open cast projects: Sonpur Bazari and Rajmahal. The remaining three are Langwal projects: Satgram, Jhanjhra, Khottadih underground mines. All three Langwal projects are unsuccessful. Moreover, coal handling plant worth almost Rs 150 crores are lying useless.

The third reason is the inability to determine the market rate of coal

Due to the pressure of the industrialists who utilise coal, the government has never been able to fix the selling price of coal. As a result of this and especially as the producers of high-calorific-value coal, ECL, BCCL, CCL are all deprived. The government could have fixed the selling price of coal. At the open market, the price of high-calorific coal produced by ECL would have been very high. But, in reality, due to government control, there was no correlation between the selling price of coal and the production price of coal. In 1991, the government stopped the grant, which was given by the coal price regulatory account to the companies that manufactured high-calorific coal. As a result of this, the difference between ECL’s current production cost and the selling price became greater. Now, when companies are crippled, the government is asking them to stand on their own feet. Besides, the import duty on coal has been reduced from 85% to 35%. As a result, ECL has to compete on unequal terms with both foreign and indigenous companies.

The fourth reason is the theft of coal

Currently, the agent, the manager, the local leaders, and the authorities are all engaged in large-scale racketeering, and the labourers believe that they are carrying on a massive theft of coal. The reference to only one incident will show the scale of this theft. There was a meeting between the State Electricity Board and the ECL authority. The meeting was held to decide whether one should consider the quantity of coal the ECL was putting in the wagons or the amount the Board was actually receiving in determining the price of coal. The Electricity Board argued that ECL should get the price of the quantity that the Board was getting. On the other hand, ECL contended that they were entitled to the price of the coal that they were putting in the wagons. That there was a large difference between the two is evident from the fact that it became a contentious issue to be debated at a meeting. Wagons of coal have been stolen in the past. In one incident, the GM of Salanpur area sent mud and rocks instead of coal to a thermal plant in Bihar. The manager was suspended after an investigation conducted by the Central Bureau of Intelligence, and ECL had to compensate for this act. In a nationalised coal company run in the interests of the state and labourers, this kind of scandalous incident was taking place without any restraint. At present, ECL’s net loss, according to the balance sheet of 31.3.1003, is Rs 4462.24 crores. The loss in this year is Rs 277 crores. In this way, from the time of nationalisation, the coal industry has been gradually degenerating. The table below gives the manufacturing price and the selling price of coal:







Cost of production of coal per ton

989.25 Rs

1169.07 Rs

1271.59 Rs

1117.43 Rs

1097.75 Rs

Selling price of coal per ton

893.28 Rs

879.60 Rs

936.70 Rs

1008.80 Rs

998.56 Rs

In 1997, the accumulated losses of ECL exceeded the investment capital. As a result, the net worth of the company became negative. Following the CICA regulations, ECL was sent to BIFR. At that point, the government debt of the company was converted to equity and, in the process, the company was taken out of BIFR by increasing its net worth. ECL was sent back to the BIFR once again in March 2001.

How effective is the current decision to take the company out of BIFR by employing contractors for production of coal in ten coal-rich patches?

For some time now newspapers such as The Statesman and The Ananda Bazar Patrika and the mine authorities have claimed that ECL will become profitable in seven years with the production of coal by contractors in ten coal-rich patches; also, the company will come out of BIFR. Let us see the factual basis of this claim:

These ten patches are: (1) Shankarpur (2) Belpahari (3) Khoirabandh (4) Patmohana (5) Egra (6) Dalurbandh (7) Nakrakunda B (8) Sonpur Bazari B (9) Hurak (Jharkhand) (10) Chupardia (Jharkhand).

The following table describes the expected production and profit of these 10 patches [Production and profit from outsourcing of patches as per rehabilitation scheme prepared by CBI the operating agencies, Annexure 12, pg. 13].


Production in Million Tons

Profit in Crores of Rupees

1st Year



2nd Year



3rd Year



4th Year



5th Year



6th Year



7th Year

Not Available

Not Available

Currently, the total deficit of ECL is Rupees 4462.28 crores. This year alone the deficit is Rupees 277 crores. Assume that ECL is able to bring down the deficit per year to 200 crores of rupees by means other than outsourcing. Even then the accumulated deficit of ECL in the next seven years will be: accumulated deficit up to 31.03.2003 4462.24 crores + 200 x 7 (=1400.00) crores in the next seven years; that is, the accumulated deficit after seven years will be 5462.24 crores of rupees. Whereas the accumulated capital of the company on 31.03.2003 was (-) 2234.47 crores which will reduce further in the next seven years.

Therefore, the total profit of 1342 crores with the production of coal by contractors will be negligible compared to the total deficits in the next seven years. Moreover, this profit will not be able to turn the accumulated capital of the company into positive. Hence, there is no connection between taking the company out of BIFR and handing over ten patches to the contractors.

The long-term conspiracy of privatisation of the coal industry under the guise of false arguments

The 1,15,000 mineworkers do not want the privatisation of the coal industry. This was proved when all organisations of mine workers were brought on a single platform under the amendment ordinance of Nationalisation of the Coal Industry Regulation. The priests of liberalisation, who are the architects of the new industrial policy, know very well that it will not be easy to privatise the coal industry. Hence, a variety of arguments and strategies are needed.

The ECL has been producing coal from opencast mines with contractors since 1982. However, according to the Contract Labour (Regulation and Abolition) Act of 1970, Section 10, Subsection 1, it is illegal to appoint contractors for the production of coal and removal of overburden. Hence, the company is using contractors to produce coal in the guise of hiring them for operating heavy machines.

The ECL is producing coal with contractors under various guises. The Gupta and Gupta committee report of 1987 allowed appointment of contractors in the fire project. That is, private contract was allowed for extinguishing fire. The overburden of the Khairabandh colliery in Salanpur suddenly caught fire. The authorities immediately called for tender without investigating the matter. A private organisation got the contract and it started mining coal openly in the name of extinguishing the fire and made a profit of several crores in two years.

The Nationalisation of Coal Mines Act of 1973 stated that all mines will be under the control of the state. But with the amendment of 1976 the iron and steel industry in the private sector was allowed to have its own captive mines.

In 1992, the central government decided to incorporate private organisations in the production of electricity. Not only that. In order to get the private sector interested in the project, the nationalisation act of 1973 was further amended. The amendment enabled the government to grant captive mines to the coal-washeries of the private sector at will. Private production of cement was added to the list on 15.3.1996.

In continuation with these developments, Ujjwal Upadhyay’s Tara Colliery was founded in 1995. While 75% of the shares of the company are owned by Bengal Emta Company, the West Bengal State Electricity Board and West Bengal Power Development Corporation together own 25%. Almost the entire production of coal in this colliery is done in the contract system.

The first totally private mine in India was started in 2002: Integrated Coal Mines Private Limited. In 2002-03, ten patches of ECL were handed over to the contractors, as noted.

The worker-friendly government of West Bengal is not lagging behind in the conspiracy to privatise the coal industry. They have not only silenced the leader of the coal-mine workers, Haradhon Roy, they have announced global tenders for seven underground and opencast mines. These include both captive and non-captive mines and the licence to sell coal. In this way the amendment ordinance of 2000 for the nationalisation of the coal industry is being surreptitiously implemented.

In fact, the perspective in which the coal industry was nationalised was as follows. At that time, the small mines owned by individual private owners could not meet the huge demand for coal in different industries. Moreover, the cost of production from underground mines was increasing sharply. For this reason, many private owners were moving away from producing high-grade coal. Also, along with rising protests against the inhuman exploitation and deprivation of the mineworkers, the government faced moral pressure from different quarters on the security of workers in the mines. As a result, the nationalisation of mines started from the ‘50s. The price of coal was determined by the central government. It follows that the coal industry was nationalised to increase the scale of production with state funds so that the uninterrupted flow of coal to different industries could be maintained at a controlled price,. We must also admit that mine security has increased manifold after the nationalisation of the industry. The production of coal has also increased. In any case, the coal industry is a profitable venture on the whole. However, this perspective of the ‘50s to ‘70s has changed in recent times. As a result of the increasing use of natural gas for thermal power generation, the demand for coal has decreased the world over. Many coalmines have been closed down in France. Australia is trying to export its surplus coal to the third world at cheap prices. The iron and steel companies in India are shifting to the cheaper and better coal with less ash-content now available from other sources. Further, the state-owned coal companies will not be able to compete with the private opencast mines. Finally, with the change of the Nehruvian wind of mixed economy to the wind of the liberalised economy of Manmohan Singh, nationalised industries now find themselves exposed in the open market just when these industries are subjected to neglect by the state. The coal industry is no exception to this general trend. Thus, the old idea of ‘coal at any cost’ was gradually transformed into the idea of ‘standing on your own feet’ and the ability to compete as a profitable venture in the global open market. This transformation took place when the nationalised coal industry was already becoming sick.

How the production of coal under the contractual system will affect the workers in the coal industry

While interviewing workers of ECL we found many workers saying that there has been no retrenchment of workers due to the production of coal under the contract system. In fact, they said that if this saves ECL it would save them as well. It is true that if ECL is saved workers will be saved. But, as our discussion has made clear, there is no connection between saving ECL and production of coal by contractors. Instead, this method will weaken the collective strength of the working class. First: the number of organised workers will decrease. Second: there will be conflict between workers under contractors and workers covered by various wage-agreements. Third: Since the wages and facilities for the workers under contractors will be much less despite the same work and same labour, pressure will be mounted on ECL workers to deprive them of various facilities such as housing, education, health care, drinking water, and the like. It will be increasingly difficult for the working class to struggle for these demands.

Further, the labour unions will progressively lose their bargaining power. As a result, the economics of the open market will gradually compel the working class to sell their labour cheaply. Most importantly, many rights earned through past national and international struggles by the working class will get gradually sidelined.

Role of the labour unions on this issue

We visited many mines and talked to the workers in order to prepare this document. Our impression is that, in general, the topic has not been sufficiently discussed among the working masses. Of course, there are some exceptions.

Yet, there are trade unions of various sizes in every mine under ECL, especially in West Bengal. Here the workers believe that trade unions are organisations where subscriptions are to be paid, where the role of the unions is to settle local problems in the workplace. Sometimes agitations, serving of notices, cessation of work etc. do take place. Also, the management is sometimes threatened with dire consequences. The management responds by co-opting the union leaders with the most muscle-power in a colliery. The rest are simply ignored and the troubles created by them are handled with a variety of management skills.

The culture of short-term benefits is the biggest problem. Big meetings are held here on wage agreements, yet when the government gave away the captive mines at will to the private industries and coal washeries in 1993, no protest meeting was held, not to speak of starting a strong movement. The unions fail to notice that such decisions by the government are weakening the coal company. The Bengal Emta Company is producing coal totally under the contract system. The workers there do not even have the minimum facilities. The established trade unions do not even pay a visit to those mines.

Another big problem with the trade unions is their total ignorance of the character of the industrial organisations where these unions are located. As a result, they have no knowledge of many significant events that take place in these organisations. The leaders do not pay regular visits to the mines. They do not study reports. It is important to study the annual reports to find out what the management is saying and what is happening. It is necessary to form studied opinions about specific organisations.

The most important factor is political will. Each trade union is controlled by some or other political organisation. Hence, on the one hand, the working class gets fragmented; on the other, the unions are run for the interest of the party rather than that of the worker. Thus, in the absence of a strong and united movement of the working class, the workers are denied even the rights earned in the past.



From: Udyog, Special Number, December 2003, Asansol, West Bengal.

Translated from the Bengali by Rita Bannerjee and Nirmalangshu Mukherji.

Click here to return to the April 2004 index.