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Santosh Tiwari: Mining and undermining

Last Updated: Fri, Sep 14, 2012 04:17 hrs

Why did a noisy opposition prevent a detailed discussion of the finer points of the Comptroller and Auditor General (CAG) report on coal block allocations? The answer can be found in a fact-check of the rebuttal that Prime Minister Manmohan Singh delivered through unruly scenes in the Lok Sabha on August 27.

The points in the speech delivered by the prime minister, who handled the coal portfolio from March 2005 to January 2006 and then again from November 2006 to May 2009, do not exonerate him or his government. But it is equally true that predecessor governments may be no less blameless.

Consider the first point of Singh’s speech. He said the allocation of coal blocks to private companies for captive use began in 1993, after the Coal Mines (Nationalisation) Act, 1973, was amended. The objective was to attract private investments in specified uses — mainly power generation and, later, cement.

Period Government No of applications 
allotted coal blocks
Private Public sector
Jun 21,’91-May 16,’96 Congress+ 2 3
May 16,’96-Mar 19,’98 UDF+  4 0
Mar 19,’98-May 22,’04 NDA 16 14
May 22,’04-till date UPA 167 83
Note: A total of 289 applications were approved for allotment of blocks independently and jointly; 195 blocks allocated since 1993; 25 blocks got de-allocated and out of which 2 blocks re-allocated 
Source: Coal ministry

This policy had a precedent; in 1976, the Coal Mines Act was amended to allow captive mining by private iron and steel manufacturers. The amendment also allowed coal mines to be sub-leased to private companies in isolated areas that were not amenable to economic development. The calculation back then was that public sector monopolist Coal India Ltd (CIL) would not be able to meet the growing demands of industry.

The CAG report confirms this. It points out that on July 14, 1992 – that is, a year after P V Narasimha Rao’s famous “reform” government took power – a screening committee under the coal secretary was set up through an administrative order. Its remit was to consider applications by companies interested in captive mining and to allocate coal blocks for development.

A list of 143 blocks was put up on the coal ministry website. They were mostly un-mined blocks belonging to CIL and Singareni Collieries Company Limited.

As the accompanying table shows, every government since then, including the Congress, Janata Dal and the Bharatiya Janata Party-led National Democratic Alliance (NDA), has allocated coal blocks to private companies and the number rises progressively as economic growth picks up.

In fact, as the CAG report points out, the NDA tried to go a step further. On April 24, 2000, it introduced the Coal Mines (Nationalisation) Amendment Bill, 2000, in the Rajya Sabha seeking coal block allocation to Indian companies for commercial mining.

Trade unions at the time strongly opposed the Bill. They were concerned at the possibility of unscientific mining and labour exploitation (the reason coal mining was nationalised in the first place). Interestingly, the Bill is pending in the upper House.

So, discretionary allocation to private companies, based on the recommendations of an inter-ministerial screening committee, had been standard operating procedure for all governments since at least 1993. The point to note, however, is that previous CAG audits did not raise the question of notional losses as a result of such allocations. A senior CAG official admits that this is the first report of its kind on coal, though the practice of projecting notional losses or gains has been followed for years in other sector.

So, should the Singh-led United Progressive Alliance (UPA) be let off the hook? The answer to why it shouldn’t lies in Singh’s Lok Sabha rebuttal. In 2003, he said, the government evolved a set of guidelines to ensure transparency and consistency. Why was this done? Because the number of applicants had swelled. Note that this is a year before the UPA first came to power so the guidelines were put in place during the NDA regime.

Before these guidelines, the process tended to be bottom-up in that the applicants themselves identified coal blocks and applied for allocation. In September 2005, a little over a year after the UPA-I came to power, the guidelines were modified to invite applications through advertisement in the interests of greater transparency.

Ask officials and they will tell you the allocations were decided on merit and the process was intensely consultative. So, how did blocks come to be allocated to companies like JLD Yavatmal Energy, which has links with Congress MP Vijay Darda’s company? The Central Bureau of Investigation (CBI) is currently investigating Yavatmal and five other companies that were allocated coal blocks during the period by allegedly providing fraudulent information about their financial strength and backing.

The biggest problem, as the CAG report indicates, is that allocations like this were made after UPA-I led by the Congress party came to the power in 2004, and at a time when the question of competitive bidding was under serious consideration.

The official version is that a large number of applications for coal blocks for captive mining were pending before June 28, 2004. In order to clear the backlog, the government decided in October 2004 to consider for allotment only applications received up to June 28, 2004.

But the concept of competitive bidding was first made public at a meeting with the stakeholders chaired by the coal secretary on June 28, 2004. A comprehensive note on the issue was submitted on July 16, 2004 by the secretary to the ministry. It highlighted the substantial difference between the price of coal supplied by CIL and coal produced through captive mining, resulting in windfall gain to the allottee. The note prompted the ministry of coal to decide that, going forward, blocks would be put up for competitive bidding only.

It is against this background that the coal secretary sought the law ministry’s opinion. According to the prime minister’s Lok Sabha statement, the law ministry’s broad opinion was that the competitive bidding process would require an amendment to the Coal Mines (Nationalisation) Act, 1973. Since this would take time, the policy of allocations continued. He did not explain why his government did not start preparations to table an amendment in Parliament in keeping with the law ministry’s recommendations.

Instead, as the CAG report indicates the Prime Minister’s Office (PMO) issued directions to the coal secretary to introduce competitive bidding only after the amendment was passed in Parliament and not apply it for applications that were pending at the time.

Subsequently, in August 2006, the law ministry suggested that competitive bidding could be introduced by administrative fiat and a law simultaneously tabled in Parliament to provide a “sound legal footing”. Despite this, the UPA continued with discretionary allocations.

The CAG report says as of June 2004, 39 coal blocks were allocated. Between July 2004 and September 2006, when the possibility of introducing competitive bidding was doing the rounds in government, 71 more blocks were allocated to various government and private companies through discretionary allocations.

So, the prime minister was factually correct in saying that it was UPA-I that considered competitive bidding in June 2004 and that the situation could well have been worse if the idea of commercial mining on an allocation basis had been cleared by Parliament. But he did not explain why he did not hasten the shift to competitive bidding. It is this gap between stated intent and action that raises questions.

With details emerging of questionable allocations under UPA, the possibility of similar deals under previous regimes cannot be ruled out. So, it was no surprise that the Public Accounts Committee has now indicated that it would look at the coal block allocations made during the NDA regime (1998-2004).

Minister of State in the PMO V Narayanasamy has already hinted at the government’s intention to extend the CBI probe to coal blocks allocated during the NDA regime. Indeed, it may be worthwhile to scrutinise all allocations starting from 1993 till December 2011, when the practice was suspended — if only to highlight the depths of crony capitalism in India.

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