Coalgate Scam

A CAG report (the draft version of which has reached the media) has found that, during a period when the Coal Ministry was directly under Prime Minister Manmohan Singh, a massive coal allocation scam took place, that allowed a large number of private companies to acquire captive coal blocks at throwaway prices, thereby securing massive “windfall gains” to the tune of Rs. 1.80 lakh crore.

PM Directly Involved

As in the 2G scam, the relatively more objective system of allocation through competitive bidding was repeatedly and deliberately rejected, in order to allow certain selected private companies to acquire control of a precious natural resource. As in the 2G scam case, the Government is again claiming “zero loss” and denying the scam. But in the 2G scam case, the UPA Government could place the blame on A Raja, maintaining that Raja in his personal capacity rejected the policy of auction that the PM and others had advised. In the coal scam, Manmohan Singh cannot shift blame onto anyone else. It is glaringly clear from the series of documents quoted by the CAG, that the PMO – ie. Manmohan Singh himself – repeatedly rejected the explicit recommendation of the Secretary (Coal) advising a shift to the system of competitive bidding. The Secretary (Coal) had stressed that the prevailing system of selection by a Screening Committee lacked ‘transparency and objectivity’ and highlighted “different kinds of pulls and pressures experienced by the Screening Committee during the decision making process.” This position was supported by several other Ministries. In spite of this, it was the PMO which continued to reject this recommendation time and again; in the meantime allocating captive coal blocks at an unprecedentedly speedy rate.

Undue Benefits

The Secretary (Coal) observed in a note in 2004 itself, that there was a “substantial difference between the price of coal supplied by Coal India Limited (CIL) and the cost of coal produced through captive mining,” resulting in a “windfall gain to the party who was allocated a captive block.”

There is a rationale for allocating ‘captive coal blocks’ to PSUs that supply power to people at subsidised rates. But why similarly allocate captive coal blocks to private companies that sell power at market rates? The CAG does not ask this question. All it says is that allocation of such resources without competitive bidding leaves ample space for corruption and cronyism, and allows private players to secure huge and undue benefits.

The major private corporations that secured huge undue benefits include the Tata Group, Jindal Steel & Power Ltd, Electro Steel Castings Ltd, the Anil Agarwal Group firms, Delhi-based Bhushan Power & Steel Ltd, Jayaswal Neco, Nagpur-based Abhijeet Group, Aditya Birla Group companies, and Essar Group’s power ventures, Adani Group, Arcelor Mittal India, and Lanco Group.

For instance, Jindal Power has been allocated captive coal mines to meet fuel requirement of its 1,000 MW Tanmar power plant in the Raigarh district of Chhattisgarh. While its fuel cost is estimated at just Rs 0.45 a unit, it has been selling power at over Rs 5 a unit in the open market. Assuming the capital costs were Rs 1-1.5 per unit, the plant has earned a return on equity of over 100%!

On the very eve of the notification of the 2009 general election, the UPA-I had rushed through the allocation of captive coal blocks to the Tata-Sasol combine and Jindal Steel and Power (JSPL) for coal-to-liquid projects in Orissa. The CAG estimated windfall gains of Rs 33,060 crore to the Tata-Sasol consortium and Rs 21,226 crore to JSPL.

Reliance Power’s ultra-mega power projects (UMPPs) at Sasan and Tilaiya are dealt with in a separate section, since they were allocated through a tariff-based competitive bidding route. The CAG finds that the government’s decision to allow Reliance Power to divert surplus coal from its Sasan and Tilaiya captive mines violated bid guidelines and resulted in “undue benefits” of Rs 15849 crore.”

PMO’s Specious Arguments

Ever since 2004, the PMO shot down the policy of competitive bidding time and again. In 2004, the PMO’s position prevailed – that since “a number of applicants requested for allocation of blocks based on the current policy, it would not be appropriate to change the allotment policy through competitive bidding in respect of applications received on the basis of existing policy.” The cut off date for considering applications as per the Screening Committee policy was decided to be 28 June 2004.

On 7 March 2005, the Secretary (Coal) reminded that decisions regarding applications received by June 2004 would have been taken by end March. Therefore, he stressed that if the revised procedure (of competitive bidding) was not put in place quickly enough (before the next round of applications), “pressures would again mount on the Government for continuing with the present procedure.” But the “PMO permitted continuance of the extant Screening Committee procedure” till the proposed competitive bidding policy could be legislated. The argument was that the Coal Mines (Nationalisation) Act 1973 and Mines and Minerals (Development and Regulation) Act, 1957 would have to be amended before the shift to competitive bidding could be done.

But in fact, the Ministry for Law and Justice clearly spelt out in 2006 that, in the words of the CAG report, there was “no legal impediment” to making the shift without amending the laws; the prevailing policy of allocation through Screening Committee had been instituted by an Administrative decision, and a shift to a new policy too could just as easily be made through Administrative decision. Yet, the PMO continued to push for amendment of laws as a precondition for a shift to the competitive bidding policy.

The bill to amend the MMDR Act was introduced in Parliament in October 2008 and passed in August 2010. While Manmohan Singh as PM and Coal Minister personally ensured the delay in shifting to the policy of competitive bidding, allocations took place at an alarmingly high rate. Earlier, the average rate of allocation of captive coal blocks used to be 3-4 per year. But in 2006, 53 coal blocks were allocated, in 2007, 52, in 2008, 24, and in 2009, 16. Significantly, after the MMDR Amendment Act 2010 was passed by both Houses of Parliament, introducing competitive bidding for allocation of mineral resources including captive coal blocks, the rate of allocation went down. In 2010, only one coal block was allocated, and no coal block was allocated in 2011.

The CAG report notes that State Government of Chhattisgarh and Rajasthan (BJP-ruled) and even West Bengal (then ruled by CPI(M)), opposed the policy of competitive bidding for captive coal blocks.

The CAG report makes the comparison with the SC observations in the 2G scam case, that the State must act as a “guardian and trustee” of natural resources; and that “natural resources cannot be allocated to private hands without ensuring that the benefit of the low cost of natural resources would be passed on to citizens.”

Clearly, the Prime Minister acted deliberately against national interest, to allow private corporations to enjoy undue benefits from access to captive stores of a precious natural resource. This is among the worst cases of corruption and facilitation of corporate plunder. Certainly those responsible need to be brought to book. As of now, the CBI enquiry into the Coalgate scam does not command much credibility or confidence.

Most importantly, it is important to go beyond the strict parameters of the CAG report. A policy of competitive bidding may reduce the incidence of cronyism, but we need to reject the very rationale of handing over captive mining resources to private profiteering corporations.

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