1. What’s the coal block allotment scam all about?
Going strictly by the CAG report, 57 captive coal blockswere allotted free of cost to private companies in an arbitrary and opaquemanner between 2004 and 2009. The government had decided to go for auctioningof coal blocks by competitive bidding way back in 2004, but did not implementit. Instead, it continued with the old arbitrary and opaque practice. The rulesfor auctioning “ after an amendment in the Mines and Minerals (Regulation andDevelopment) Act “ were notified only on February 2, 2012. No auctioning meanta huge loss to the exchequer and financial gain to the private companies to thetune of Rs 1.86 lakh crore.
Details of the findings are as follows:
Arbitrariness: Until 1993, there were no specific criteriafor allocation of coal blocks. In 1993, a new process was started in whichallocations were made on the recommendation of an “inter-ministerial screeningcommittee”, headed by the coal secretary.
The CAG report says during the period under review “therewas nothing on record in the said minutes (of the screening committee) or inother documents on any comparative evaluation of the applicants for a coalblock which was relied upon by the screening committee”.
In one case, out of 182 applicants, only two were scheduledto make presentations before the screening committee, which then went on torecommend six companies for allocation. “Thus, a transparent method forallocation of coal blocks was not followed by the screening committee,” itsaid.
A national news channel accessed the minutes of thescreening committee and exposed how 17 private companies were allocated coalblocks in a single meeting even though they did not turn up for presentingtheir case.
The CAG report also pointed out how mindless allocation ofcoal blocks to private companies caused huge losses to public sector companyCoal India Limited (CIL). The guidelines for allocation clearly state that coalblocks offered to the private sector should be “at reasonable distance fromexisting mines and projects of CIL in order to avoid operational problems”. Butthis was violated and Reliance Power was given Moher and Moher-AmlohriExtension blocks for its Sasan power project which resulted in the sharing ofboundary with CIL subsidiary Northern Coalfields Limited (NCL)’s existingAmlohri opencast project. As a result, NCL couldn’t access coal reserve of 48million tonnes of its coal and also reduced its project life from 24 years to20 years. Similarly, the sharing of boundary of Nigahi opencast project of NCLwith Moher-Amlohri Extension resulted in reduction of mineable reserves by 9million tonnes.
Non-auctioning: The CAG report says that in 2004 the coalministry itself made out a case for auctioning of coal blocks. In a note, thecoal secretary said “…since there is a substantial difference between price ofcoal supplied by Coal India and coal produced through captive mining, there isa windfall gain to the person who is allotted a captive block…”. The note alsosaid that “…the bidding system will only tap a part of the windfall profit forthe public purposes…”. The PMO agreed.
But prevarications started immediately and legal opinionswere sought. The law ministry took two years to say (in 2006) that auctioningcould be started either through administrative instructions or by amending theMines and Minerals (Regulation and Development) Act of 1957. Despite clearadvice, the coal ministry continued with the old practice and allotted 71 moreblocks (net) between 2004 and 2006. In all, 142 coal blocks were allotted topublic and private entities since 2004.
Finally, the law was amended in 2010 but the rules forauctioning were notified only on February 2, 2012.
Windfall gain: The CAG estimated financial gains to the tuneof Rs 1.86 lakh crore for the private companies. Its calculation is based onaverage cost of production and average sale price of opencast mines of CIL inthe year 2010-11.
The audit excluded 12 coal blocks allotted to ultra-mega powerprojects (UMPP) as these were allotted on the basis of tariff based bidding inwhich coal blocks were included in the bids.
2. How valid is the government’s criticism of CAG’sfindings?
The government has disputed all three major findings of theCAG. It has maintained…
1. That allocation of coal blocks through the screeningcommittee was transparent and fair.
This claim flies in the face of facts presented by the CAG(and narrated earlier).
2. That it would have been “undemocratic” to go ahead withauctioning because some of the state governments were opposed to it.
True, some states were opposed to it. So, how did thegovernment overcome the problem? The CAG report gives a chronology ofdevelopment to show that there was only one meeting held with the stateministers to sort out the matter, on August 10, 2009, nearly a year after anamendment to the MMRD Act was introduced in parliament. This meeting could havebeen held and the matter sorted out without being undemocratic in 2004. Whatprevented it? On the contrary, the CAG report shows how various ministries ofthe union government and the PMO actively participated in delaying theintroduction of auctioning by raising one trivial issue after the other. Thispractice started in 2004 and continued till 2008. The amendment to the MMRD Actwas passed and notified in September 2010. But the rules for auctioning werenotified only on February 2, 2012. This shows how serious the government was toauction coal blocks.
3. That there was no windfall gain since only one of the 57coal blocks has started production and the method used to estimate the gain wasfaulty. No gain will accrue to the companies they are not allowed to sell thecoal in market but use it only for running their power or steel or cementplants.
These assertions are not correct. Valuation of a companygoes up dramatically in the market after a high-value asset like a captive coalblock is added to its kitty. It has come to notice that one such company inMaharashtra was sold off at 12 times its valuation after a coal block wasallotted to it. In another instance, a private company was caught making akilling by selling coal in the market.
The CAG has also come for criticism on two more grounds.
1. The coal ministry says auctioning of coal blocks wouldhave led to a higher cost of power.
This is a big lie. On the contrary, the CAG report pointsout how the coal ministry itself had been arguing that captive coal miningwould mean cheaper coal to the private companies.
It says, “In the meeting held in the PMO on July 25, 2005 todiscuss competitive bidding as a selection method for allocation of coal andlignite blocks for captive mining, it was observed that the rational methodwould ensure that the cost of coal through the competitive bidding route isless than that of coal sourced from CIL or imports. Secretary (coal) had thenstated that the competitive bidding procedure will only tap part of the profitthat accrued to the companies…While private captive blocks would be availableto the allottees for their own needs alone they would not require to carry ahuge cost of social overheads and excessive manpower like that of CIL or SSCL.It was thus clear that ministry of coal itself had argued that there was gainto the allottees of coal blocks”.
It says further, “Most importantly, the contention ofministry of coal in 2004-2006 when it was making attempts to introducetransparency/competition in allocation of coal blocks (that is, auctioning) wasexactly along the lines of the conclusions of audit (CAG). The honourablesupreme court, in the judgment on 2G spectrum has also directed to introducetransparency/competition in allocation of scarce natural resources”.
The CAG has excluded 12 coal blocks allotted to UMPPs fromits calculation because these were based on tariff based bidding, meaning thattheir tariff was fixed. But that is not the case with other beneficiaries.
As the other CAG report on UMPP (tabled along with the oneon coal block allocation) pointed out, Reliance Power stood to gain Rs 29,000crore because it was allowed to divert coal from the coal blocks meant forSasan UMPP to its Chitrangi power project. The Sasan UMPP got three coal blockson the basis of tariff based bidding and will supply power at a fixed rate ofRs 1.196 per unit. The same coal will be available to the Chitrangi powerproject also but in this case power will be sold at a much higher rate, at Rs2.45 per unit as per the agreement signed with the Madhya Pradesh government.
It still remains a mystery as to why Sasan UMPP was given athird coal block (Chhatrasal) and allowed to have surplus coal which it wasthen permitted to divert to another power project of the company.
It is to ensure that the private companies getting cheapercoal don’t go on to fleece the consumers by selling power at a high cost thatthe CAG strongly recommended in its report that “there is a need for strictregulatory and monitoring mechanism to ensure that benefit of cheaper coal ispassed on to the consumers”.
2. V Narayansami, MoS in PMO, said that “CAG is notfollowing its mandate”, meaning thereby that the CAG had no business commentingon selection process for allocation of coal blocks because that was a policymatter and fell in the domain of the government, not the auditor.
This is not a valid accusation. It was the union government(coal ministry and PMO) that had decided in favour of auctioning of coal blocksway back in 2004 but didn’t implement that, leading to loss of revenue to theexchequer. The CAG hasn’t questioned the policy. Rather, it has questionednon-implementation of the government’s policy.
