3
When claim disputes are less frequent, as was the case
after 1900, the benefits of full title decrease, reducing the
incentive for firms to acquire mining rights (Gerard 2001).
Second, transaction costs can lead firms to prefer different
ownership structures than suggested by standard property
rights theory. High transaction costs may make joint own-
ership optimal, even when only one party makes invest-
ment decisions (Müller &Schmitz, 2016). They can also
lead a non-investing party to be the optimal owner, con-
trary to standard theory (Müller &Schmitz, 2016). This
is because certain ownership structures that provide large
gains from trade may motivate parties to incur transaction
costs (Müller &Schmitz, 2016). Third, transaction costs
related to information gathering can also alter the impli-
cations of property rights theory. When parties can invest
in acquiring private information about their payoffs from
a transaction, inefficient rent-seeking can emerge, leading
ownership by a non-investing party to be optimal (Schmitz,
2005). This contrasts with the standard theory that owner-
ship should be allocated to motivate investment. Fourth,
the acquisition of mines by firms in resource-importing
countries can affect resource prices in several ways. It may
increase either current or future resource prices, depend-
ing on factors like the strategic behavior of mining firms,
demand for final goods, and extraction costs (Higashida
et al, 2013). Empirically, the acquisition of oil mines by
resource-importing firms has been found to increase pres-
ent oil prices but decrease future prices (Higashida et al,
2013). Finally, property rights over resources are complex,
with multiple attributes to which different rights may be
held (Foss, 2005). A firm’s ability to generate value from
resources depends on which property rights it holds and
the transaction costs of defining, enforcing, and exchanging
those rights (Foss, 2005). Reducing such transaction costs
can be a source of value creation (Foss, 2005).
From these two theories, it is suggested that when min-
eral supplies are likely to be lower than demand, raising the
expectation of volatilities in prices, the firms may seek to
acquire mineral rights, for some firms this may be a strat-
egy to to control volatilities in their input costs (Morita,
Higashida, Takarada, &Managi, 2018). This may manifest
in the form of high demand for mineral assets, thereby cre-
ating a need for objective and transparent process for award
of mineral rights, specifically when such rights are vested
in the governments (Lange &Cummins, 2021). This was
observed in the case of coal block auctions in India.
Coal mining industry was nationalized by the gov-
ernment of India in 1973 by an act of Indian Parliament
called the Coal Mines (Nationalization) Act, 1973. Prior
to independence in 1947, coal mining was dominated by
private British companies focused primarily on maximiz-
ing profits rather than developing India’s resources (Kumar,
1981). After independence, the new Indian government
sought greater control over this vital industry. However,
early attempts at regulation and taxation of private mines
were unsuccessful, as companies evaded requirements and
the government lacked enforcement capacity (Lahiri-Dutt,
2017). By the 1960s, private coal companies were strug-
gling with difficult geology, lack of investment, and increas-
ing costs. Many companies neared collapse, threatening
India’s industrialization goals (Kumar, 1981). The govern-
ment stepped in, taking over abandoned mines to prevent
job loss and economic disruption. This “nationalization by
default” eventually led to the Coal Mines (Nationalization)
Act of 1973, which formally nationalized all coal mines in
India (Kumar, 1981).
Nationalization improved the government’s control
over coal resources, but also introduced new challenges.
The state-run Coal India Limited (CIL) struggled with low
productivity, lack of technical expertise, and trade union
unrest (Garewal, 1978 Lahiri-Dutt, 2014). The environ-
mental and social impacts of mining intensified, including
displacement, pollution, and industrial accidents (Lahiri-
Dutt, 2014 Sinha, 1986). CIL also faced challenges of
meeting demand for coal when the demand rose rapidly
since 2003 on account of high economic growth and conse-
quent high electricity demand. CIL formulated a coal sup-
ply agreement with low committed proportion of supplies
that attracted penalty for failing to meet supply commit-
ment to its customers.
Failure to meet quantity commitments by CIL were
coupled with failure to meet quality of coal supplies (Tongia
&Sehgal, 2019). CIL used Useful Heat Values (UHV) to
define grades of coal, which is a parameter that cannot be
measured directly in laboratories but is computed using for-
mulae (Bhattacharya &Tiwari, 2014). Within the defined
grades of coal, CIL had wide range of Useful Heat Values
(UHVs) – a computed method of classification of Indian
coal that uses measurable properties such as Gross Calorific
Value, Ash Content and Moisture Content (Ghosh et al.,
2016). This allowed CIL to supply lower qualities of coal. It
was also observed that even with such contractual arrange-
ments that allowed CIL flexibility in coal supplies, CIL
was not able to meet its quality commitments and supplied
lower grades of coal than those for which it signed contracts
(Mahapatra &Dholakia, 2015). This was often termed as
grade slippage (Tongia &Gross, 2019). With such chal-
lenges of quantity and quality of supplies from CIL, trans-
action cost of securing supplies from CIL was high.
When claim disputes are less frequent, as was the case
after 1900, the benefits of full title decrease, reducing the
incentive for firms to acquire mining rights (Gerard 2001).
Second, transaction costs can lead firms to prefer different
ownership structures than suggested by standard property
rights theory. High transaction costs may make joint own-
ership optimal, even when only one party makes invest-
ment decisions (Müller &Schmitz, 2016). They can also
lead a non-investing party to be the optimal owner, con-
trary to standard theory (Müller &Schmitz, 2016). This
is because certain ownership structures that provide large
gains from trade may motivate parties to incur transaction
costs (Müller &Schmitz, 2016). Third, transaction costs
related to information gathering can also alter the impli-
cations of property rights theory. When parties can invest
in acquiring private information about their payoffs from
a transaction, inefficient rent-seeking can emerge, leading
ownership by a non-investing party to be optimal (Schmitz,
2005). This contrasts with the standard theory that owner-
ship should be allocated to motivate investment. Fourth,
the acquisition of mines by firms in resource-importing
countries can affect resource prices in several ways. It may
increase either current or future resource prices, depend-
ing on factors like the strategic behavior of mining firms,
demand for final goods, and extraction costs (Higashida
et al, 2013). Empirically, the acquisition of oil mines by
resource-importing firms has been found to increase pres-
ent oil prices but decrease future prices (Higashida et al,
2013). Finally, property rights over resources are complex,
with multiple attributes to which different rights may be
held (Foss, 2005). A firm’s ability to generate value from
resources depends on which property rights it holds and
the transaction costs of defining, enforcing, and exchanging
those rights (Foss, 2005). Reducing such transaction costs
can be a source of value creation (Foss, 2005).
From these two theories, it is suggested that when min-
eral supplies are likely to be lower than demand, raising the
expectation of volatilities in prices, the firms may seek to
acquire mineral rights, for some firms this may be a strat-
egy to to control volatilities in their input costs (Morita,
Higashida, Takarada, &Managi, 2018). This may manifest
in the form of high demand for mineral assets, thereby cre-
ating a need for objective and transparent process for award
of mineral rights, specifically when such rights are vested
in the governments (Lange &Cummins, 2021). This was
observed in the case of coal block auctions in India.
Coal mining industry was nationalized by the gov-
ernment of India in 1973 by an act of Indian Parliament
called the Coal Mines (Nationalization) Act, 1973. Prior
to independence in 1947, coal mining was dominated by
private British companies focused primarily on maximiz-
ing profits rather than developing India’s resources (Kumar,
1981). After independence, the new Indian government
sought greater control over this vital industry. However,
early attempts at regulation and taxation of private mines
were unsuccessful, as companies evaded requirements and
the government lacked enforcement capacity (Lahiri-Dutt,
2017). By the 1960s, private coal companies were strug-
gling with difficult geology, lack of investment, and increas-
ing costs. Many companies neared collapse, threatening
India’s industrialization goals (Kumar, 1981). The govern-
ment stepped in, taking over abandoned mines to prevent
job loss and economic disruption. This “nationalization by
default” eventually led to the Coal Mines (Nationalization)
Act of 1973, which formally nationalized all coal mines in
India (Kumar, 1981).
Nationalization improved the government’s control
over coal resources, but also introduced new challenges.
The state-run Coal India Limited (CIL) struggled with low
productivity, lack of technical expertise, and trade union
unrest (Garewal, 1978 Lahiri-Dutt, 2014). The environ-
mental and social impacts of mining intensified, including
displacement, pollution, and industrial accidents (Lahiri-
Dutt, 2014 Sinha, 1986). CIL also faced challenges of
meeting demand for coal when the demand rose rapidly
since 2003 on account of high economic growth and conse-
quent high electricity demand. CIL formulated a coal sup-
ply agreement with low committed proportion of supplies
that attracted penalty for failing to meet supply commit-
ment to its customers.
Failure to meet quantity commitments by CIL were
coupled with failure to meet quality of coal supplies (Tongia
&Sehgal, 2019). CIL used Useful Heat Values (UHV) to
define grades of coal, which is a parameter that cannot be
measured directly in laboratories but is computed using for-
mulae (Bhattacharya &Tiwari, 2014). Within the defined
grades of coal, CIL had wide range of Useful Heat Values
(UHVs) – a computed method of classification of Indian
coal that uses measurable properties such as Gross Calorific
Value, Ash Content and Moisture Content (Ghosh et al.,
2016). This allowed CIL to supply lower qualities of coal. It
was also observed that even with such contractual arrange-
ments that allowed CIL flexibility in coal supplies, CIL
was not able to meet its quality commitments and supplied
lower grades of coal than those for which it signed contracts
(Mahapatra &Dholakia, 2015). This was often termed as
grade slippage (Tongia &Gross, 2019). With such chal-
lenges of quantity and quality of supplies from CIL, trans-
action cost of securing supplies from CIL was high.