The black smudge of coal allocation

The alleged scam in the allocation of coal blocks for mining purposes has been termed a huge national loss. This scam, brought to light by the CAG, has stirred Parliament and the UPA.

Published: 07th September 2012 12:37 PM  |   Last Updated: 07th September 2012 12:37 PM   |  A+A-


September 6 marked the 12th successive day of disruption in both houses of Parliament with the BJP demanding that Prime Minister Manmohan Singh resign over the coal block scam that was brought to light by the Comptroller and Auditor General of India (CAG). The alleged scam in the allocation of coal blocks for mining purposes has been termed a huge national loss. Originally thought to be in the region of over Rs 10 lakh crore, the loss has since been pegged at Rs 1.86 lakh crore.

According to the CAG, the government’s decision to not auction nearly 150 coal blocks during the period between 2004-2011 as well as its liberal process of scrutiny of applicants resulted in a huge loss of revenue. However, the UPA government led by Manmohan Singh has refuted the allegation, claiming that the loss is ‘zero’ since the companies to whom the coal blocks were allotted have not done any mining in those areas.

The Opposition parties, particularly the BJP, have been demanding action, including the resignation of Singh who was the coal minister from 2005 to 2009. The parties have also been demanding the cancellation of around 142 coal block allocations made from 2006 as a pre-condition for allowing Parliament to function normally.

Coal and its uses

Coal is a precious natural resource and India is one of the largest producers of coal. India produces more than 500 million tonnes of coal every year and is the third largest producer in the world after China and the US. India’s coal reserve is estimated to be around 267 billion tonnes. Extensively rich coal mines are located in Odisha, Jharkhand and Chhattisgarh, while lesser deposits are in Bihar, West Bengal, Madhya Pradesh and Maharashtra.

Coal block allocation

With the Coal Mines (Nationalisation) Act of 1973 India nationalised the entire coal mining operations in the country. This Act continues to govern the eligibility of coal mining in the country. However, the private sector was allowed to participate in captive mining, especially private companies engaged in iron and steel production. In June 1993 the coal sector was opened to power generation and in 1996 it was opened to cement manufacturers. By 1993 the policy of allocation of coal blocks to private as well as government entities had come into play. But there were hardly any selection norms. Coal blocks were awarded either on the recommendation of a ministerial committee or through direct allocation.

It was only in 2004 that the idea of awarding coal blocks on the basis of competitive bidding was seriously considered and announced.

However, it has not been exercised and even the methodology for conducting such an auction has not been finalised by the government.

By March 31, 2011 nearly 194 coal blocks had been awarded to companies. It is against this backdrop that the CAG report pegs the loss to the exchequer. The CAG has also been strongly recommending that the government’s coal ministry arrive at the modalities of awarding coal blocks for mining exercise.

The coal scam

It was in March this year that media reports emerged that the CAG was on the trail of irregularities in coal block allocation. Fundamentally, the CAG’s allegation against some of the coal block recipients is that they did not pursue mining activities.

Instead, they ‘sat’ upon the allotted blocks waiting for the price of coal to rise to enhance the value of the coal blocks in order to re-sell them to other companies interested in captive mining for a huge profit.

The CAG report raised doubts over the net worth of companies and accused some of the companies of providing incorrect financial data to the ministry. In short, recipients of coal blocks enjoyed a ‘windfall benefit’.

Government: Zero loss

The Manmohan Singh government has been rebutting the CAG report just as it did in the 2G spectrum allocation scam. The government has been maintaining that there has been ‘zero loss’ to the exchequer.

Its stand is that since there has been no mining activity in the allotted blocks there has been no commercial transaction and as such there is really no loss whatsoever. CAG’s argument is that sale price and production costs were not factored in — an oversight given that the primary objective of allotting coal blocks was to mine coal and improve the power situation in the country. The Opposition parties have been demanding cancellation of the 142 coal blocks in question, but the government is claiming that it cannot de-allocate. CAG’s response will be that block allotments were made without a proper assessment of mineable reserves, when the Public Accounts Committee probe goes into top gear.

CBI probe

The CBI has booked five companies, their directors and unknown public servants in five cases, for allegedly inflating their net worth to win allocation in coal blocks in Odisha, Maharashtra, Jharkhand and Chhattisgarh. Congress MP Vijay Darda has been named by the CBI in one of the cases.

While some of the companies booked have been accused of selling their stake in an ‘irregular manner’ after getting the allocation, others are shown as having inflated their company’s net worth by getting into short-term agreements. However, these Memorandam of Understandings (MoUs) cleverly glossed over the fact that the MoUs were for a short term only.

By all indications, Coalgate is a scandal that is likely to smoke and simmer for quite a while.

Road ahead

While the Opposition has been vociferously demanding that Singh resign, owning moral responsibility, experts say what is required is a transparent and foolproof bidding process to ensure that the country’s natural resources do not end up in the hands of a few ‘speculators’. After all the availability and correct pricing of coal, cement and steel affect the common man.


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