Why UPA dithered on coal auctions

Last Updated: Sat, Sep 08, 2012 18:42 hrs

While the coal ministry favoured the auction of coal mines, states outrightly opposed the move. The PMO, too, dragged its feet. Jyoti Mukul traces how the proposal moved back and forth

Coalgate (damage, according to the Comptroller & Auditor General: Rs 1.86 lakh crore) is different from the spectrum scam (maximum damage: Rs 1.76 lakh crore) in one crucial way: this time, the Centre has said that it was keen to replace opaque allocations with transparent bidding but its efforts were stymied by coal-bearing states like Orissa, Chhattisgarh and West Bengal. It so happens that during Coalgate (2004 to 2009), the first two states were ruled by the Bharatiya Janata Party, sworn enemy of the Congress, and West Bengal by the Left (partner in the earlier United Progressive Alliance regime of 2004 to 2009 but now in the opposition benches). BJP’s reluctance to have a debate on the floor of the house, the Congress’s spin doctors have said, stems from its role in blocking the Centre’s proposal to go for open bidding.

So who’s responsible? When Indira Gandhi nationalised coal mining in 1973, popular opinion favoured ending profiteering and malpractices in many sectors including energy and banking. Coal till then was being mined privately with virtually no regulation. Though her socialist moves have for long been a subject of criticism, she left some captive coal mines belonging to India Iron and Steel Company (now a subsidiary of state-owned Steel Authority of India), Tata Steel and Damodar Valley Corporation untouched. Over time, the Coal Mines Nationalisation Act was modified to allow captive mining in sectors like iron and steel, power and cement.

In 1992, some 143 coal blocks of Coal India and Singareni Collieries, where production plans had not been made, were identified for use by captive miners. But it seems bidding was not on anybody’s mind. However, people within the government had started to debate the option of bidding for non-captive mining. An amendment to the Coal Mines Nationalisation Act was proposed in 1997 and introduced in Parliament in 2000, in spite of the opposition of the trade unions, though it wasn’t passed. Still, none of the governments in power really cared for a transparent bidding process to give away captive coal blocks. It was left to a screening committee, headed by the Union coal secretary, to scrutinise applications for coal mines that were backed by recommendations from other ministries and state governments.

But officials in the power and coal ministries felt the need for transparency. P C Parakh, the then coal secretary, argued that the system of screening committee, even after modifications, would not be able to achieve the objectives of transparency and objectivity in the allocation of coal blocks. In June 2004, a month after Manmohan Singh had taken over as the prime minister, the idea of competitive bidding emerged and the Centre started talking about amending the Coal Mines Nationalisation Act for the purpose. By July, a comprehensive note for pushing bidding was placed before Dasari Narayana Rao, the then minister of state for coal. In August, the process of seeking the Cabinet’s clearance started. The prime minister’s office raised some concerns over the possible fallouts of competitive bidding — the government’s primary objective was how to maximise coal production and not to increase revenue.

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Parakh dismissed the PMO’s objection and moved on with a draft Cabinet note. He highlighted the pulls and pressures that the screening committee faced during the decision making process. But, there was resistance from both within the Union government as well as the coal-bearing states. While the debate raged, Rao, the minister, said coal allocation could not wait for the bidding process. Besides, it was felt that applications conforming to the prevalent norms could not be asked to go through bidding; so the cut-off date of June 28, 2004 was set. Why did Rao take this position? “Somebody could have decided that no allocation would be done without bidding but an important issue at that time was the failure of the power sector to meet targets in continuously during Eighth, Ninth and Tenth (Five Year) Plans. Coal demand was shooting through the roof. Allotment and linkages were important,” says Partha Bhattacharya, former chairman, Coal India.

The draft Cabinet note was revised in November 2004, and going by the cut-off date, bidding was to become effective prospectively. So the urgency to introduce bidding through ordinance was no longer there and it was decided to go through the motions in Parliament. Soon enough, objections from the states started pouring in. In March 2005, A K Vijayavargiya, then chief secretary of Chhattisgarh, one of the major coal-bearing states, wrote to Parakh objecting to the proposed bidding. “The proposed bidding process involving production sharing by successful bidders with Coal India would result in substantial increase in the cost of essential input “coal” to such iron/steel industrial undertakings which do not have access to captive coal blocks allotted on nomination basis,” the BJP ruled state’s industries and mineral department wrote in a note that was forwarded by Vijayavargiya to Parakh. Fresh investment in inland states like Madhya Pradesh, Chhattisgarh and Jharkhand will suffer, he averred, though companies with historic captive mining rights or those in coastal locations were no doubt better placed.

Coal supply was, even at that time, short of demand, so the Chhattisgarh government feared that “the supply and sale of commodity needs to be regulated rather than putting it on the competitive bidding route”. It, instead, suggested that the allotment of captive coal blocks to iron and steel industry needed to be continued and transparency could be introduced by bringing financial and technical criteria in the existing mechanism itself.

The same month, Asok Gupta, the then chief secretary of West Bengal, wrote that the bidding of coal blocks only on the basis of bidding would see allocation on the basis of the highest price offered. “The present system of allocation of coal block on the basis of recommendation of screening committee takes care of both the subjective and objective aspects of the projects for which coal block for captive mining is applied,” wrote Gupta.

By April, Vasundhara Raje Scindia, then Rajasthan chief minister and BJP leader, too joined the issue. Rajasthan is a major lignite producing state and the bidding norms were to be applicable to lignite too. Rajasthan was working on a policy to allot lignite leases only to such parties as would be willing to establish lignite-based power plants within the state for meeting power shortages. “The proposed process may result in the lignite being mined by the successful bidder for use at locations outside the state,” she said in her April 11, 2005 letter.

Consultations with the state governments were not helping much. Though changes to the Act did not technically require concurrence of the states, since coal is a central subject, and such a move did not need any constitutional amendment, Finance Minister P Chidambaram says that in a federal set-up it is prudent to take the states on board. So, by June 2005, the draft of Cabinet note was ready but it was felt that the power sector concerns where the objective was to generate electricity at the lowest cost should be addressed. On July 25, 2005, at a meeting in the Prime Minister’s Office, it was decided that the ministry of coal would continue to allot coal blocks for captive purposes through the screening committee route since the amendment of the Act would take “considerable time”.

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Another turn to the proposal for introducing bidding came in March 2006. It was felt that amendment to the Mines and Minerals (Development and Regulation) Act is more appropriate since that will make bidding mandatory for all minerals covered under the legislation. The MMDR Act is administered by the Union mines ministry. Unlike coal where allocations are done by the Centre, other minerals are allotted by states, though a no-objection certificate besides other clearances are required from the Centre as well. So another two years went into consultations, and it was only in October 2008 that the Bill for amending the MMDR Act was placed in Parliament.

With the passing of the law in September 2010, another round of discussions ensued on what should be the basis of bidding and how can the power sector be ringfenced from the implications of coal now being priced for the first time in the country for miners. In February 2012, the norms for bidding were finally notified. Coal Minister Sri Prakash Jaiswal says his ministry is adopting an “extremely cautious” approach towards the process to avoid any controversy in the future.

Clearly, it was only the UPA government that thought of bidding, despite the fact that most mineral-rich countries do not have a system of bidding for natural resources. Modelling of bidding norms has also been difficult but with rules for auctioning notified in February, the coal ministry plans to introduce bidding by the end of the financial year. If only for UPA, the bidding process had started before August 17, 2012, the coal scam probably would not have blown on its face.

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