Coal Block Scam: Read fining Corruption: Civil Services Mentor Magazine October 2012

Coal Block Scam: Read fining Corruption

It seems that this UPA Govt. is breaking all its record on the corruption front, by every passing day it is coming up with a new kind of scam and breaking its own record. In one sentence we can say this govt. is redefining corruption in golden letters. The Comptroller and Auditor General of India (CAG) said in a report submitted to Parliament that an estimated financial gain of Rs 1.86 trillion was made by private allottees that were given coal blocks by the ministry of coal. The report said the ministry of coal should urgently go forward with competitive bidding for captive coal blocks mining. From 2004 to 2009, 85 coal blocks were allocated to 137 private companies, according to the coal ministry data, and several of them are under the scanner, officials have said.

More than 80 percent of the allottees have not yet started producing coal from their respective blocks. This led to a bizarre scenario where on the one hand, the government acted with unprecedented haste in allocating these blocks, and on the other, it did precious little to ensure that the allottees started producing coal from their respective mines and used it for the designated end use like producing power, steel, cement, etc. The government has now set up a committee to identify how many operators have deliberately defaulted in starting the coal production work and how many got stuck on account of bona fide delays in land acquisition, forest and environmental clearance or approval of mining plan. The biggest rationale of the government behind captive coal block allocation was to enhance domestic coal production capacity.

The country’s top auditor has put corruption squarely back on the national agenda, potentially compounding the political problems facing the Congress-led United Progressive Alliance (UPA) government. In three separate reports, quantifying the notional loss to the exchequer at Rs.3.03 trillion, the Comptroller and Auditor General of India (CAG) has, for the first time, directly cast aspersions on the role of the Prime Minister’s Office (PMO) for its failure to check what it claims to be violations in awarding coal mining contracts.

The issue of allocation of natural resources has been at the centre of the debate on corruption. From the Supreme Court to the Comptroller and Auditor General (CAG) to anti-corruption crusaders  like Team Anna, all have slammed the UPA for allocating precious natural resources like 2G spectrum, minerals and land to private hands at a fraction of their market price. It was the CAG that had first exposed how the telecom policy was manipulated to favour select companies at the cost of public interest. A new CAG report, this time on coal block allocation, has put the spotlight on Prime Minister Manmohan Singh for alleged corrupt policy-making, causing a revenue loss of several thousands of crores of rupees. Politically, the coal allocation scam has far greater implications for the UPA than the 2G swindle. During the five years of UPA-1, Manmohan Singh was also the coal minister for about three and a half years. The junior minister in the coal ministry was always a Congressman. Yet the PM failed to introduce the policy of competitive bidding for captive coal block allocations,
despite having given an in-principle approval to it within the first six months of his tenure as prime minister.

Time Line of Coal Block Scam

16 July 2004: Coal Secretary Parakh placed a comprehensive proposal on competitive bidding before Dasari Narayana Rao highlighting, among other things, the fact that the existing system would lead to windfall gains to allottees. (PV Narasimha Rao’s government had first instituted the screening committee system. The successive United Front and NDA regimes had continued with this policy. In all, 39 captive blocks were allocated to private players until the UPA took over).

24 July 2004: In the wake of an arrest warrant issued by a local court in a two-decade old massacre case, Soren resigned from the Cabinet and the prime minister assumed charge of the coal ministry.

28 July 2004: In a note to Parakh, Dasari Rao sought various clarifications like what would be the likely opposition from the industry, particularly, the power sector; and the impact on price of power and obligations of the government.

30 July 2004: Parakh gave the necessary clarifications. He explained that as only a few companies could be allocated captive blocks while the rest would continue to either purchase it from Coal India Limited or buy imported coal, the former would stand to make a windfall gain.

20 August 2004: The PM directed the coal secretary to prepare a draft note on competitive bidding so that the Cabinet could deliberate upon it and take a decision.

11 September 2004: The PMO forwarded a note detailing certain alleged disadvantages of auction. The coal secretary replied that the arguments lacked merit. Parakh also brought to the PM’s notice that the screening committee was facing different kinds of pulls and pressures for allocation to some select companies and recommended that all future allocation be done through competitive bidding.

4 October 2004: Dasari Rao wrote to Parakh that the competitive bidding policy should not be pursued any further. The rationale given by Rao for scrapping the proposed auction route was that the Coal Mines (Nationalisation) Amendment Bill, 2000, envisaging competitive bidding for allocation of blocks for merchant mining, was pending in the Rajya Sabha due to stiff opposition from trade unions and the Left. But what Rao didn’t put on the file was that the Left’s opposition to the proposed amendment was to the entry of private players in merchant coal mining per se, and not to competitive bidding as such. But by mixing the two issues, which were entirely different in nature, Rao tried to nix the proposed policy of auction.

14 October 2004: Instead of putting its foot down on a crucial policy issue, the PMO asked Parakh to respond to the issues flagged by Rao.

1 November 2004: The PMO decided that all the applications received till 28 June 2004 would be processed as per the existing policy and the Coal Mines Act would be amended through a Bill in the “coming Parliament session” to bring into effect the policy of auction for all future coal block allocation. The PMO asked Parakh to amend the draft Cabinet note accordingly. In the meantime, Shibu Soren, after spending a few months in jail, was released on bail.

27 November 2004: Soren was re-inducted in the Cabinet and took over the charge of coal ministry from the PM.

23 December 2004: Parakh placed the revised Cabinet note before Rao for approval.

28 January 2005: But now, Soren and Rao joined forces to give the auction policy a quiet burial. Soren wrote on the file that he was in complete agreement with Rao that the proposed auction policy did not need to be proceeded any further. At the time, JMM was not only an important Congress ally at the Centre, the two parties were preparing to oust the BJP government in Jharkhand in the coming Assembly elections in the state.

2 March 2005: The then Jharkhand Governor Syed Sibtey Razi, in a controversial move, instead of inviting the NDA to form the government, which clearly had the support of more legislators in the Assembly (the BJP- anata Dal (U) combine had 36 members in the Assembly, and the Congress-JMM only 26) — asked Soren to form the next government. The BJP called Razi’s decision the “rape and murder of democracy”. Soren resigned from the Union Cabinet to become Jharkhand chief minister. The PM once again took the charge of the coal ministry.

7 March 2005: Wi th the change of guard at the coal ministry, Parakh once again tried to revive the auction policy. He sent a note to the PM stating that decisions on all applications received till 28 June 2004 would be taken by the end of March 2005 and if the auction policy was not put in place quickly enough, pressures would once again mount on the government to continue with the existing procedure. Parakh wrote such a scenario “might not be desirable in the interests of bringing about total transparency in allocation of coal blocks”.

16 March 2005: The PMO asked Parakh to update the draft Cabinet note and send it back urgently.

24 March 2005: The PMO approved the draft note after which it was circulated to different ministries like power and steel for their comments. The views of state governments were also sought.

21 June 2005: Parakh placed the draft Cabinet note incorporating the views of various state governments and comments of other ministries before Rao for approval of the prime minister.

4 July 2005: Rao wrote to the PM that the power utilities were reluctant to participate in competitive bidding due to cost implications and that the auction policy needed to be considered in greater detail. But what he didn’t elaborate was that there were also many Central government ministries, departments and state governments that were in favour of auction. The Planning Commission, Ministry of Mines, Department of Expenditure under the Ministry of Finance and the Ministry of Steel were in favour of competitive bidding.

25 July 2005: The PMO decided that to effectuate the auction procedure, the Coal Mines (Nationalisation) Act would need to be amended. In a scandalous move, it instructed the coal ministry to continue with the existing system since the amendment was “likely to take some time”. As a result, 24 coal blocks with reserves of 3,754 million tonnes, were allocated in 2005.

12 January 2006: When the amended draft Cabinet note (proposing auction policy via amendment in the Coal Act) was again placed before Rao, the minister stated that “there was no immediacy in the matter and that the note be resubmitted at an appropriate time keeping in view the issues involved.” But while Rao tried to put the policy change on the backburner, the correspondence between the PMO and the coal ministry reveals that the PM kept pressing for the submission of the Cabinet note. On the other hand, the JMM chief, who had to resign within nine days of taking over as Jharkhand chief minister as he had failed to prove his government’s majority in the state Assembly, had again started lobbying for the job of coal minister.

29 January 2006: Soren was once again handed over the coal ministry.

7 April 2006: In a meeting held in the PMO, it was decided that the system of competitive bidding would be made applicable to all minerals including coal via an amendment in the Mines and Minerals (Development and Regulation) Act, 1957.

27 April 2006: Rao wrote on the file that “the issue to amend the MMDR Act should be revisited as it involved withdrawing the current powers of the state governments and had the potential to become a controversial issue”. The same day, Soren seconded Rao’s opinion and wrote that “the views expressed by the minister of state were appropriate and the ministry of coal should refrain from making suggestions, which had implications for federal polity”.

17 October 2008: Because of constant obstruction by Soren and Rao, it took another two years before a Bill to amend the MMDR Act, 1957, was tabled in Parliament on 17 October 2008. In the meantime, 53 coal blocks with 17,792 million tonnes of reserve were allocated in  2006, 52 blocks with 11,862 million tonnes of reserve in 2007, 24 coal blocks with 3,550 million tonnes of reserve in 2008 and 16 coal blocks with 6,893 million tonnes of reserve in 2009 were allocated without competitive bidding.

August 2010: The MMDR Amendment Act, 2010 was passed by both the Houses of Parliament in August 2010. However, till date, not a single coal block has been given through auction. The CAG’s office has estimated that 90 percent of the reserves will be extracted on a commercial basis. It has multiplied the aggregate recoverable reserves of different grades with the present prices being offered by Coal India. Coal India’s prices are lower than global rates and the difference between them can go up to 70 percent on the basis of quality of coal. If the calculation of benefit is done based on the prevalent prices of the time when the blocks were allotted, it will come to 6.3 lakh crore rupees.

Coal blocks allocated between 2005-2009

YearCoal Blocks AllocatedCoal Reserves
(million tonnes)
2005243,754
20065317,792
20075211,862
2008243,550
2009166,893

In its report on captive coal block allocation, the auditor said that delays in the competitive bidding process may have resulted in “financial gains to the tune of Rs.1.86 trillion” for private coal block allottees. Following are some of the major organizations involved in the scam and are supposed to have benefited from the scandal:

  • NTPC Limited
  • Essar Group
  • Jindal Steel and Power
  • Adani Group
  • Bhushan Power & Steel Ltd
  • Arcelor Mittal
  • Jayaswal Neco
  • Lanco Group
  • Aditya Birla Group
  • Tata Steel
  • Hindalco
  • Monnet Ispat
  • NALCO

The CAG report mentions that the processes for allotting the coal mines were not totally transparent. It does not say, though, that government favored any company willingly. It is being estimated that the companies gained because the coal was virtually provided for free. The draft report of the CAG’s office states that if the mines had been provided for a certain fee it would have ensured some benefits for the tax payers as well.

The North Arkhapal coal block had been given to Strategic Energy Technology Systems, which is a joint venture between Sasol, a South African organization, and Tata Sons. The Ramchandi Promotional Block had been allocated to Jindal Steel & Power. Both the above mentioned blocks had reserves of 1,500 million tons each and they were allotted on February 27, 2009. This was the final working day prior to the model code of conduct that was implemented on March 2, 2009 before the elections. The two organizations beat 16 leading organizations such as Reliance Industries, Lanco Infratech, Indian Oil Corp, JSW Energy, and GMR Group. These blocks were used for pilot projects where coal was converted to oil.

The government has defended its coal policy by arguing that revenue maximisation was never its objective; it wanted to support industrial growth by ensuring the availability of coal to key sectors like power, steel and cement and also to keep their prices low. “The coal policy was perfectly alright. Coal blocks were given to power projects and manufacturers of other end products like steel and cement,” says Minister of State, PMO, V Narayanasamy. “If we had auctioned coal, the prices of power, cement, steel, etc, would have gone up and hurt the consumer.” But a closer scrutiny lays bare the hollowness of these arguments. In the case of the allottees who have actually begun production, there is little evidence to suggest that they have passed on the low coal production cost to the consumers. Dozens of power projects were given captive coal mines. Most of them have not entered into power purchase agreements (PPA) with state governments. A few plants that have become operational, are operating as Independent Power Producers (IPPs) selling power at a lucrative rate of Rs 10 to Rs 12 per unit in the short term market, thus making stupendous profits.

The report of the Ashok Chawla Committee on Allocation of Natural Resources has remarked that “actual prices based on recent competitive bids for power show that bids received for power plants running on imported coal are actually priced quite competitively relative to their domestic counterparts”. Conclusively we can say that the day the Comptroller and Auditor- General of India submitted its report on coal block allocations declaring the loss of a staggering Rs 1.86 lakh crore to the exchequer, common people of this country was sure enough that this time the Prime Minister would not let his colleagues defend him. Rather hoped that he himself would come forward and have the courage to explain what had gone wrong with the coal allocations. But by maintaining silence, the Prime Minister has disappointed the whole country once again.

This Government did all that it could to prevent Anna Hazare and Baba Ramdev from raising their voices against corruption. But remember, a person does not become corrupt just by offering and accepting bribes. He become equally corrupt if he keeps mum about the corrupt activities that happen under his watch. So, one can only hope that the UPA Govt. take a stern action by cancelling all the allocation in the controversial period and all who are behind it should be served with exemplary punishment, that no another scam like this can happen again.

Aman Srivastava

 

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