Boostrapping : EAS.05 - EAS over Coal
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Proposed administrative procedure - EAS.05
Equal   Allowance   System   over   Coal

: To reduce nexusproness in the administrative procedures dealing with coal mining, AND to ensure that citizens get equitable royalty over coal.

Pre-requiste readings :
  • EAS.01 -- Equal Allowance System over Underground Water
  • RLPP.


    1. Background
    2. Important technical issue in coal mining
    3. Other issues in coal mining
    4. Overview of EAS.05
    5. "A makes parts and B selects" method
    6. Managing citizen-owned mining company
    7. Advantages of EAS.05
    8. Should mines be private or citizen-owned?
    9. Draft of the act to create procedure EAS.05


    The purpose is to reduce poverty, without taxing the rich. How? By ensuring that every citizen gets equitable share in the "rent" or "deemed rent" of natural resource. How? I have proposed several laws to enable that. EAS.05 is one of these proposed laws.

    Some technicalities about coal mining

    One aspect of coal mining is --- how deep the coal mine is.

    This factor determines the most important financial issue in coal mining ---- how much investment and fixture is needed in the mine before coal mining can begin. This has direct impact on length of the lease and amount of coal that MUST be dug out to offset the infrastructure cost. If the investment is high, the length of lease needs to be long and amount of coal that must be dug out every year too needs to be high.

    In case of open coal mines, the mines are almost at ground level. The investment needed on the site of the mine-field is minimal. The coal-digging company needs only trucks and digging equipment. And in case the mining company is expelled, the company can take coal-digging equipment to another field without any loss in the value of its equipment. Thus politically as well as economically, it is very much viable to promptly expel a coal-digging company without causing any loss to company’s immovable investments.

    But in case a coal mine is deep, the coal digging company needs to create an expensive framework before the coal can be dug. Several undeground canals have to be dug and several rail tracks and elevators have to be installed to move wagons to transport coal and labor. This framework needs a lot of time and investment. So even though it is politically possible to expel a coal digging company in a deep mine, it would be economically/morally an unfair move. If the company is expelled, it would loose all the amount it has spent in creating the mine’s immovable infrastructure. This infrastructure can be taken apart and shipped, but it then would lose the value.

    Summing up, if the coal mine is deep, it becomes necessary to have a longer lease and if the company is expelled, it would be unfair not to compensate it for the valuable and useful immovable investments it has made. But if the coal mine is open-cast and coal-digging needs less fixed equipment, the coal-digging company can be expelled, if the need be, and no compensation needs to be paid.

    Other issues in coal mining

    Whether coal mining is State owned or private, some issues ALWAYS appear. One issue is --- which specific officers in-charge will select companies to mine coal? Which officers will decide the amount (in tons) of coal they can dig in a year? Which officers will decide the payment/royalty (per ton) for mining rights?

    Also, a coal mining company needs to fulfil several additional conditions. Some conditions are related to environment and some with local economy. Such as
    1. After digging coal, the companies may have to refill the land to cover the crater. Not filling the crater can reduce the fertility of the land.
    2. Sometimes when coal is dug in a forest, the trees have to be cut and so once the coal is mined out, it is necessary that re-forestation of that area is done.
    3. The coal mining company may be required to hire only the locals for unskilled labor.
    And like that, there can be several conditions.

    So the questions that arise are :
    1. which officers will decide the environment/labor and other terms?
    2. which officers will supervise if the coal mining company is fulfilling these terms?
    3. if a company is accused of breaking a term, which officers/courts will arbitrate on the fines and expulsion?
    And anytime a question like "which officers will do so and so . . ." comes, immidiately a co-question comes "what are the procedures for citizens to expel that officers, if citizens believe that he is nexused with so and so".

    Today, the IAS/Ministers take all these decisions. And in almost all such cases, the judges have final say. Needless to say, the judges in India takes years and decades to resolve cases. So needless to say, the existing system where Ministers/IAS/judges decide gives almost zero economic and social returns to the citizens.

    The EAS.05 provides much better option.

    Overview of EAS.05

    EAS.05 deals with coal, the second most important natural resource. Following are the main points of these administrative procedures :

    1. Transfer of mines : The Center shall handover ownership of ALL coal mines to the States.

    2. Appointing senior officers : The Chief Minister will appoint Coal Minister (as today). For each district, the Coal Minister will appoint a Registrar, a Coal Guard and a Mine Plotting Officer. One person may manage more than one district. If that district has no coal mines, these positions may be left vacant for those districts.

    3. The Registrar will issue a serial number for any person or company who wishes to run a coal mine and/or buy coal from mines of that district.

    4. Making mine's boundaries : The Mine Plotting Officer will demark the various mining plots' boundaries in the district and will decide the lease (in number of years) for each mining plot, and amount of coal mining company can extract every year.

      eg say the district of Kachchh has lignite. Then the local Mine Plotting Officer may demark one mine, and set it for "lease of 5 years, coal output of 10000 tons a year". Another mine where coal is deeper may be set for "lease of 10 years, coal output of 20000 tons per year" and so forth.

    5. Bidding for mine plots : A company interested in leasing mining plots can file the bids PUBLICLY before Registrar by stating the fraction of coal the company will keep for itself and fraction of coal it would hand over to citizenry.

      eg say a company wants a mine set for "5 year of lease, coal output be 10000 tons a year". It can place the bid as "company will keep 40% and citizenry will get 60% of the coal". Other company may place the bid as company will keep 30% and citizenry will get 70%" and so forth.

    6. Allocating mine plots : The Coal Guard will give the mine plot to the company which bids the least fraction for itself.

    7. Allocation of coal :
      1. A citizen using RLPP can give his monthly Coal Allowance to any company which wants to buy coal from the mines in the State.

      2. At the mine's site, the Coal Guard will divide the coal extracted into several wagons. Say the company has promise to keep 20% of the coal and give 80% to the citizenry. The Coal Guard will let the Allowance owning companies take 80% of the coal and give the remaining 20% of the wagons to the mining company. [For actial distribution of coal, please see "A makes parts, B selects" methoid described later"]

    8. Citizens' control over senior officers : The citizens can change Mine Plotting Officer, Coal Gaurd and Registrar using RLPP.

    9. Citizens' control over mining companies : The citizens can also change/expel Mining Companies using Approval/Disapproval filing using RLPP.

    "A makes parts, Y selects" strategy to divide goods

    This strategy is NOT directly related to EAS.05, but this EAS and other EASs may make use of it for distribution of material such as coal or ore.

    Here is the problem statement
    1. Lets say two persons A and B have to divide water into 2 equal parts
    2. one glass is full and there is one extra empty glass
    3. how can water be divided so that both A and B get equal amount of water
    Of the several ways, one way is
    1. let PersonA pour water from full to empty glass
    2. now PersonB will decide which of the two glasses he wants
    3. PersonA will have to take the other glass.
    Now can PersonA act maliciously? Can he pour more water in the other glass? Or por less water in other glass? Unlikely. Because PersonA knows that in such a case, since PersonB is going to select first, very likely, PersonB will select glass with more water, and so PersonA will end up with the lesser amount of water. So to safe guard himself, he has no option but to put equal amount of water into bothe the glasses.

    This is what I call "A makes parts and B selects" rule. This strategy reduces possibilities of foul play and cheating. This rule attains fairness using supervisory officers with much less discretionary power. The reduction in discretionary power reduces corruption and responsibility of citizens in controlling the officers.

    Now say there is a full glass and 3 empty glasses. Then how can a glass of water be divided into 4 parts, so that each of the 4 persons, say A, B C and D get equal parts? One strategy is to let PersonA divide the water into 4 parts. AFTER A makes parts, PersonB, PersonC and PersonD can chose in a RANDOM (not known in advance) order. Please note that it is necessary to arrange the selectors in a random order, that too AFTER the water was divided into 4 glasses. If the order is known to them in advance, nexus building may occur. Say if the order is known in advance, that (B will choose, followed by C, followed by D) then A and B may for a nexus. PersonA may keep one glass full and keep other 3 empty. Then PersonB will choose the full glass and then share with PersonA. Thus PersonA and PersonB will get 50% of the water and PersonC and PersonD will be left with zero. But if the selection order is random, AFTER division is made, it reduces the chances of such nexuses.

    How can "A makes parts and Y chooses" strategy can be used in coal mining? It can be used in dividing the coal which has been dug. Lets say a coal-digging company has grant to produce 100 wagons (wagon = 20 tons) of coal every day, out of which it can keep 40 wagons for its cost/profit and must give 60 wagons to another parties. Now typically coal will have small quantities of stones and ashes. Say in that region, the coal has 10% impurities. Now what malacious coal digging company can do is keep 40 coal wagons with less impurities and throw all impurities in the other 60 coal wagons. How can this be prevented, without giving too much discretinary powers to the Coal Guard?

    One solution is that ore-digging company can be asked to line up the 100 wagons full of coal it has mined. And the buyer can be asked to pick 60 wagons of his choice. Over time, the buyer (or his agent) will figure-out how to find the wagons with more coal and less impurities. Thus the coal company, if it tries to mix coal with dirt etc, will end up with the worst lot.

    The "X makes parts and Y chooses" method is superior to a method where a government officer would himself execute the task of dividing up the coal to ensure "fairness". In such cases, the chances of nexuses and corruption will increase.

    Managing Citizen-owned coal mining company

    In EAS.05, a coal mining company may be private or owned by Government. Even when a coal mining company is owned by the Government, the employees of EAS.05, such as Registrar, Coal Guard etc are to treat them as if it is a separate entity.

    In case a coal mining company is citizen owned, citizens can use the following administrative procedures to run the coal mining company:
    1. Say about citizens of 6-7 districts own a coal mining company.

    2. In such case, the Chaorman of the company may be initially appointed by Panchayat Members of the District Panchayats

    3. The citizens may relace him using RLPP

    4. The company should hire the junior staff members ONLY via open competitive exams. Any appointment without exam would need permission of the majority of the Grand Jurors.

    5. The citizens may expel any of the staff members using Jury Trials.

    6. After serving as Chairman for 4 years in continuous or broken intervals in one or another Citizen-owned company, the person cannot become Chairman in Citizen owned company for next 4 years.
    7. For investments, the company may obtain grants from the Districts which own the company. The grants will be funded strictly by district level property/sales or any other tax, as approved by Panchayat Members or approved by citizens (via LM.01)
    The company will be better run than existing PSUs. Will it outform private companies? Yes and No. If Yes, citizens should continue it or else they may dissolve it using LM.01 or LM.02.

    Advantages of EAS.05
    1. EAS.05 reduces poverty. How? The coal buyers can obtain coal from the ore-digging company using Allowance. Now today, the market value of coal is about 20% to 80% higher than the sum of the costs of mining and transportation. In EAS.05, much of this 20% - 80% will go to the Allowance sellers i.e. citizens. Thus each citizen living in the States with the mines gets an income, without any increase in price level. Thus the poverty reduces. In states like Jharkhand, EAS.05 alone can remove poverty in less than 1 year.

    2. It reduces nexusproneness in coal mining industry and thsu improves its efficiency

    3. EAS.05 reduces coal theft. How? Suppose the citizens realize that about 20% - 40% of the coal is being stolen. This means that the coal-buyers get less coal and thus give lesser value for their Allowances. In other words, if the Allowances are fetching Rs. 100 per month, stopping the theft would increase the value to Rs. 120 - Rs. 140. Given the monetary benefit, most citizens will start investigating the issue. And if the rumor of theft is correct, most citizens would Approve someone else for the position of the Coal Guard using RLPP. In fact, the fear of prmot replacement alone would ensure Coal Guard’s integrity, and thus low theft.

    Should mines be private or citizen-owned?

    A 200-year old question has been ----- are private oligopolies/monopolies more efficient or Government-owned oligopolies/monopolies? The question is very much misleading itself.

    First, efficiency for whom? A perticular person can be extremely efficient in serving X, but extremely inefficient when it comes to serving Y. For example, most lawyers are extremely polite to judges but extremely impolite to rest of the mankind. Likewise a private electricity company, like Enron, is very efficient to its owners, but what about rest of the India?

    So please allow me to rephrase the 200-year old question --- are citizens better off with private oligopolies/monopolies or Government-owned oligopolies/monopolies? Whose efficiency is higher with respect to citizens - private or Government owned oligopolies?

    The private monopolies (or oligopolies) are ALWAYS worse than Government owned monopolies or oligopolies. Besides, many "successful" private companies obtain capital from Government owned banks or Government owned trust funds (like UTI, LIC, GIDC etc.), thereby throwing much of the failure risk on the Governments. In addition, private monopolies also ask for counter guarantees of various types, thereby throwing marketing burden on Governments as well.

    Why not have private monopolies/oligopolies with regulators? Once upon a time, private monopolies regulated by Government used to run with some reasonable efficiency. But soon the companies’ owners established nexuses with regulators and the Ministers/officers who appoint these regulators. Using these nexuses, the mine owners ensure that that ONLY the individuals with whom these mine owners have nexuses get appointed as regulators. So lately, regulators have stopped making attempts to control the monopolies.

    Now there are two ways to run a Government owned monopoly : one is by using Ministers/officers/judges and other is by using recallable officers and Juries. A Government owned monopoly run by Ministers/officers/judges is extremely corrupt, wasteful and inefficient. But a Government owned monopoly run by recallable officers/Juries will always be efficient, and it will be much more efficient than private monopolies under regulators. Lately, a large number of Government owned companies are running in a wasteful way, but that is because of lack of Jury System. It is the failure of judges, not the owners (i.e. Governments or citizens).

    Now lets come back to coal digging question. As per today’s technology, the coal digging happen to be oligopolistic as more mines cannot be created. So the Citizen owned coal mining companies with RLPP will be more efficient for citizens than private oligopolies.

    But please note that EAS.05 DOES NOT have any pre-condition that the coal mining companies must be Citizen owned and cannot be private. The EAS.05 ONLY insists that the mine, which is given by God, be citizen owned. And EAS.05 ONLY insists that citizens have fast/cheap RLPP-type procedures to expel an unworthy officer or a mining company. It is NOT a binding that a citizen must give his Approvals and Allowances to a citizen-owned coal mining company. If the a private coal mining company is indeed more efficient, the citizens can/will give its Approvals to that private company

    Draft of the act to create procedure EAS.05

    Two laws needed to be passed for to enact EAS.05, one in Parliament and another at State level. I have drafted the texts for both. To see the drafts, please click here.

         Now citizens can ask MPs/MLAs to pass these Acts. But IMO, it will be wiser for citizens to first enact procedure LM.02 and LM.03, and then use LM.02-03 to pass this EAS.05 draftd WITHOUT any help from MPs and MLAs. To know about procedure LM.02, please click here and to know about procedure LM.03, please click here.

    If you have any other question, please mail it to Thousand thanks in advance.

    Next - EAS.06 : Equal Allowance System over Residential Land