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    From Tehelka Magazine, Vol 9, Issue 32, Dated 11 Aug 2012


    Coal Spill

    By choosing to look the other way, Prime Minister Manmohan Singh yielded to vested interests who looted the country of its valuable natural resource. Ashish Khetan on how inaction bred corruption

    Illustrations: Anand Naorem

    THE ISSUE of allocation of natural resources has been at the centre of the debate on corruption. From the Supreme Court to the Comptroller and Auditor General (CAG) to anti-corruption crusaders like Team Anna, all have slammed the UPA for allocating precious natural resources like 2G spectrum, minerals and land to private hands at a fraction of their market price. It was the CAG that had first exposed how the telecom policy was manipulated to favour select companies at the cost of public interest. A new CAG report, this time on coal block allocation, has put the spotlight on Prime Minister Manmohan Singh for alleged corrupt policy-making, causing a revenue loss of several thousands of crores of rupees. Politically, the coal allocation scam has far greater implications for the UPA than the 2G swindle.

    During the five years of UPA-1, Manmohan Singh was also the coal minister for about three and a half years. The junior minister in the coal ministry was always a Congressman. Yet the PM failed to introduce the policy of competitive bidding for captive coal block allocations, despite having given an in-principle approval to it within the first six months of his tenure as prime minister.

    In more ways than one, the story of the coal scam encapsulates the story of the UPA. It shows how an indecisive and ineffective leader is as deleterious for the country as an outright corrupt one. The story proves that the 2G scam was no aberration for which the blame could be placed at the doors of a rogue minister from another political party. Rather, it shows that the malaise of private profiteering and crony capitalism ran deep in the UPA establishment. A figurehead PM with bona fide intentions was continually hobbled by vested interests at every turn. And whenever an occasion arose where the choice lay between taking a stand and looking the other way, the PM opted for the latter.

    But before we get into the details of the story, here are some broad facts of the coal scam.

    For a full six years, different vested interests — among them Jharkhand Mukti Morcha chief Shibu Soren, who became coal minister thrice, and the Congress’ own MOS for coal, Dasari Narayana Rao, who, instead of supporting the PM, sided with Soren — joined forces to thwart the proposed auction policy on one pretext or the other. During these five years, the draft Cabinet note proposing auctioning of coal blocks, prepared on the instructions of the PM, was amended about half-a-dozen times, ostensibly to address the concerns of those who were opposed to auctioning. But each time the note was amended, a new litany of objections were raised.

    Interestingly, among those opposed to auctioning were the BJP-ruled states of Rajasthan and Chhattisgarh and the CPM-ruled West Bengal. Rajasthan chief minister Vasundhara Raje even wrote to the PM, opposing the proposed policy of competitive bidding for coal and lignite blocks. It reminds one of the letter (2 December 2007) written by veteran BJP leader Murli Manohar Joshi to the PM arguing that the auction of 2G spectrum would lead to hoarding and cartelisation. Later, Joshi headed the Parliament’s Public Accounts Committee and tore into the UPA for not resorting to auction.

    Coal blocks allocated between 2005-2009


    Coal Blocks Allocated

    Coal Reserves (million tonnes)
















    As it happens, both the BJP and CPM are now leading the attack against the UPA for allocating coal blocks through a screening committee system. The double standard of the BJP and the Left shows that the affliction of crony capitalism is not unique to the Congress. But more on that later (see box). The UPA was in the driver’s seat and is alone accountable for the policy failures.

    Unlike other minerals, coal is a Union subject. But bizarrely, elements within the UPA used objections raised by players like Vasundhara to defer the auction policy, although Rajasthan has no known deposits of coal. Also, the fact that a majority of coal-producing states had no problem with the proposed policy was ignored. Of the six states, each with more than 20 billion tonnes of coal reserves, only Chhattisgarh and West Bengal raised concerns about the auction policy. Besides, several Central ministries were in favour of auction.

    The file on the proposed auction policy kept doing the rounds of the PMO, the coal ministry, and the law ministry, but was not put up before the Cabinet until 2009. The policy was finally put into operation in 2010. (However, the rules for auction are still to be formulated and, therefore, not a single block has been allocated through auction after the introduction of the new policy.) An exercise that should at best have taken six months, took six years.

    At the very start of UPA-1, then coal secretary PC Parakh had informed the PM that the extant system under which a screening committee headed by the coal secretary with representatives from various ministries, State-owned corporations and state governments allocated captive coal blocks, was arbitrary, opaque and prone to corruption. More importantly, he told the PM that there was a substantial difference between the price of coal supplied by Coal India Limited and the cost of coal produced through captive mining, and thus, parties with captive blocks were making windfall gains.

    On 28 June 2004, Parakh, in a consultative meeting with stakeholders, including industry and consumer forums, made a strong pitch for linking the allocation of coal blocks with a market-driven economy. Between 1992 and 2004, on an average, three or four captive coal blocks were allocated to major steel, cement or power companies every year through the screening committee system.

    Following Parakh’s vehement opposition to this method, the UPA announced the auction policy in 2004 but didn’t operationalise it until 2010. This led to a mad scramble for captive coal blocks between 2004 and 2009. Reminiscent of the 2G scam, where non-serious players entered the fray only to acquire precious spectrum, which they could later sell at a premium, private operators rushed in to get captive coal blocks. These companies were aware that once the auction procedure came into force, the very blocks that the government was giving away for almost free would be priced at market-determined rates.

    Among those opposed to the auction policy were the BJP and Left-ruled states of Rajasthan, Chhattisgarh and West Bengal

    But, while between 2004 and 2009, the UPA kept deferring the auction policy, it also went on an unprecedented allocation binge. As many as 155 precious coal blocks with billions of tonnes of coal reserves were allocated at a fraction of their true market worth in a span of five years (76 were allocated to private companies, and the rest went to public sector enterprises). The circumstances, as we will later see, suggest that this was done as per an elaborate conspiracy hatched between decision-makers and coal allottees.

    More than 80 percent of the allottees have not yet started producing coal from their respective blocks. This led to a bizarre scenario where on the one hand, the government acted with unprecedented haste in allocating these blocks, and on the other, it did precious little to ensure that the allottees started producing coal from their respective mines and used it for the designated end use like producing power, steel, cement, etc. The government has now set up a committee to identify how many operators have deliberately defaulted in starting the coal production work and how many got stuck on account of bona fide delays in land acquisition, forest and environmental clearance or approval of mining plan. The biggest rationale of the government behind captive coal block allocation was to enhance domestic coal production capacity.

    The draft report of the CAG has pegged the total loss of revenue from this misallocation between Rs 6.31 lakh crore and Rs 10.67 lakh crore. While the windfall gain made by private companies stands between Rs 2.94 lakh crore and Rs 4.79 lakh crore, TEHELKA has learnt from its sources that the final CAG report has pegged the undue gain made by private operators between Rs 1.5 lakh and Rs 2 lakh crore.

    Although the UPA had announced the competitive bidding policy in 2004, it was not made operational until 2010

    “It was the worst corruption ever,” says BJP leader Prakash Javadekar. “Everybody in the market knows that the companies paid huge bribes to get these blocks. The going rate of kickbacks was between Rs 50 and Rs 100 per tonne of coal allocation.” The CBI has initiated a preliminary inquiry into the allocations on the basis of a complaint lodged by Javadekar with the Central Vigilance Commission (CVC). Sources say that the agency has so far identified more than a dozen companies, which lacked the requisite technical and financial eligibility but still managed to get the blocks. Since March 2011 (after the CAG started scrutinising allocation documents), the coal ministry has suo motu cancelled 14 coal block allocations.

    DURING UPA-1, the coal ministry was under the charge of a Cabinet minister and one minister of state. While the senior minister’s charge kept alternating between Soren and Manmohan Singh, the junior minister’s charge remained with the Congress. From 23 May 2004 to 6 April 2008, former Congress Rajya Sabha MP Dasari Narayana Rao (a Telugu filmstar whose personal website calls him a ‘confidant of Congress President Sonia Gandhi’) and from 7 April 2008 to 29 May 2009, Congress MP from Rajasthan, Santosh Bagrodia, were ministers of state for coal. Curiously, both were Rajya Sabha members and both, instead of backing the prime minister’s proposed coal policy, cast their weight behind those who were against it. Dasari Rao went cahoots with Soren to overturn the initiatives taken by the PM to formulate a transparent and fair coal policy.

    What’s in the letters?

    WOULD THINGS have turned out any different if instead of the UPA, it was a BJP or a Left-led government at the Centre? After all, the NDA had first introduced the dubious first-come, first-served policy in telecom. In the allocation of coal blocks, it followed the screening committee system for six years. TEHELKA has in its possession letters written by the BJP and Left-ruled state governments, which show that even while in Opposition, instead of nudging the government towards a transparent and objective coal policy, both parties defended the corruption-ridden system and opposed auction.

    On 31 March 2005, then West Bengal Chief Secretary Asok Gupta wrote (vide letter No. DO No. 21- CS/05) to former coal secretary PC Parakh that “the government of West Bengal is not in favour of introduction of the proposed system of allocation of coal blocks for captive mining through competitive bidding”. Gupta wrote that “the present system of allocation of coal blocks on the basis of recommendation of the screening committee takes care of both the subjective and objective aspects of the projects… whereas the system of allocation through competitive bidding proposes to allocate coal blocks only on the basis of the highest price offered”.

    Gupta’s arguments defied logic as every expert committee formed since 2004 had pointed out the arbitrariness of the screening committee system. The Expert Committee on Coal Sector Reforms headed by TL Sankar recommended an overhaul of the allocation processes to bring in transparency and effectiveness. The Ashok Chawla Committee has also advocated competitive bidding.

    But the West Bengal government defended the screening committee system on frivolous grounds. In the same letter it said: “In the present system, views of state governments are considered during allocation of coal blocks to industries. There is no such provision in the proposed system of allocation. This may have an impact on the efforts of the state government towards industrial development of this state.” Parakh had talked of lobbying by state government representatives for select companies in the screening committee as an area of concern. It is also hard to understand why industries would not set up plants closer to coal mines if the blocks were not given for free. After all, West Bengal has around 30 billion tonnes of coal reserves.

    Ten days after Gupta’s letter, then Rajasthan Chief Minister Vasundhara Raje wrote to the prime minister (letter No. DO No. F 17(3) Mines/1/2004; 11 April 2005) and asked for the continuation of the existing screening committee system. Rajasthan has only lignite reserves. The BJP leader said that the proposed auction policy of coal and lignite blocks was “against the spirit of the Sarkaria Commission’s recommendations”. She also argued that “the proposed change would take away the state’s prerogative in selection of the lessee, since under the proposed system, the lessee would be chosen by the Central government through a process of competitive bidding”.

    The Raman Singh government in Chhattisgarh was also opposed to the auction policy. The then Chhattisgarh chief secretary vide a four-page letter, dated 28 March 2005 (DO No. 873), wrote to Parakh that “the state government is not in agreement with the proposed change in the policy of allocation of captive coal blocks. The state government is of the considered view that in the interest of the growth of iron and steel industry consequent to the boom in the international iron/steel market, viability of iron/steel units in the inland locations, and to ensure a level-playing field to the pipeline/new units vis-à- vis having access to captive coal blocks allotted without bidding, the present policy of allocation must be continued”. The government argued that since industrialists in the past had got coal for free, the policy should be continued to create a level-playing field between new and old players.

    A vacillating PM with little political stature or leadership skills yielded to the obstacles created by people within and outside the government. “As minister from time to time, the PM could have put his weight behind the auction policy,” said former coal secretary PC Parakh — who held the post between March 2004 and December 2005 — in a short TV interview to CNN-IBN aired on 9 June. (When contacted by TEHELKA, Parakh said that he would now speak to the press only after the final CAG report was tabled in the coming session of Parliament).

    What is striking is that each time JMM chief Soren was inducted in the Union Cabinet, the PM handed him the coal ministry. In an ideal world, Soren should have welcomed the auction policy for the simple reason that Jharkhand is among the states with the largest coal reserves in India. And, though coal is a Union subject, a majority of the royalty generated from coal exploration goes to states that have coal blocks. Clearly, auctioning of blocks would have meant a quantum leap in the revenues of states like Jharkhand. Still, while he was in the hot seat, Soren did whatever he could to sabotage the auction policy.

    The CAG draft report pegs the total loss of revenue from misallocation between Rs 6.31 lakh crore and Rs 10.67 lakh crore

    Seemingly, Union ministers were also openly lobbying for coal block allocations to private companies through the screening committee. Recently, a private firm filed a writ petition in the Delhi High Court and alleged that Tourism Minister Subodh Kant Sahai, who was the Minister for Food Processing Industries during UPA-1, lobbied to get coal blocks allocated to a company associated with his brother. Sahai allegedly wrote letters to the PM seeking his “personal intervention” in getting two coal blocks allotted to SKS Ispat and Power Limited — a company with alleged links to Sahai’s brother.

    The chain of events narrated below would demonstrate how vested interests within the coal ministry blocked a lame-duck prime minister’s feeble attempts at bringing transparency and fairness in policy formulation at every turn. This is how the alleged coal scam unfolded beginning with 2004 — the year UPA came to power.

    16 July 2004: Coal Secretary Parakh placed a comprehensive proposal on competitive bidding before Dasari Narayana Rao highlighting, among other things, the fact that the existing system would lead to windfall gains to allottees. (PV Narasimha Rao’s government had first instituted the screening committee system. The successive United Front and NDA regimes had continued with this policy. In all, 39 captive blocks were allocated to private players until the UPA took over).

    24 July 2004: In the wake of an arrest warrant issued by a local court in a two-decade old massacre case, Soren resigned from the Cabinet and the prime minister assumed charge of the coal ministry.

    28 July 2004: In a note to Parakh, Dasari Rao sought various clarifications like what would be the likely opposition from the industry, particularly, the power sector; and the impact on price of power and obligations of the government.

    30 July 2004: Parakh gave the necessary clarifications. He explained that as only a few companies could be allocated captive blocks while the rest would continue to either purchase it from Coal India Limited or buy imported coal, the former would stand to make a windfall gain.

    20 August 2004: The PM directed the coal secretary to prepare a draft note on competitive bidding so that the Cabinet could deliberate upon it and take a decision.

    11 September 2004: The PMO forwarded a note detailing certain alleged disadvantages of auction. The coal secretary replied that the arguments lacked merit. Parakh also brought to the PM’s notice that the screening committee was facing different kinds of pulls and pressures for allocation to some select companies and recommended that all future allocation be done through competitive bidding.

    4 October 2004: Dasari Rao wrote to Parakh that the competitive bidding policy should not be pursued any further. The rationale given by Rao for scrapping the proposed auction route was that the Coal Mines (Nationalisation) Amendment Bill, 2000, envisaging competitive bidding for allocation of blocks for merchant mining, was pending in the Rajya Sabha due to stiff opposition from trade unions and the Left. But what Rao didn’t put on the file was that the Left’s opposition to the proposed amendment was to the entry of private players in merchant coal mining per se, and not to competitive bidding as such. But by mixing the two issues, which were entirely different in nature, Rao tried to nix the proposed policy of auction.

    14 October 2004: Instead of putting its foot down on a crucial policy issue, the PMO asked Parakh to respond to the issues flagged by Rao.

    1 November 2004: The PMO decided that all the applications received till 28 June 2004 would be processed as per the existing policy and the Coal Mines Act would be amended through a Bill in the “coming Parliament session” to bring into effect the policy of auction for all future coal block allocation. The PMO asked Parakh to amend the draft Cabinet note accordingly. In the meantime, Shibu Soren, after spending a few months in jail, was released on bail.

    27 November 2004: Soren was re-inducted in the Cabinet and took over the charge of coal ministry from the PM.

    23 December 2004: Parakh placed the revised Cabinet note before Rao for approval.

    28 January 2005: But now, Soren and Rao joined forces to give the auction policy a quiet burial. Soren wrote on the file that he was in complete agreement with Rao that the proposed auction policy did not need to be proceeded any further. At the time, JMM was not only an important Congress ally at the Centre, the two parties were preparing to oust the BJP government in Jharkhand in the coming Assembly elections in the state.

    2 March 2005: The then Jharkhand Governor Syed Sibtey Razi, in a controversial move, instead of inviting the NDA to form the government, which clearly had the support of more legislators in the Assembly (the BJP-Janata Dal (U) combine had 36 members in the Assembly, and the Congress-JMM only 26) — asked Soren to form the next government. The BJP called Razi’s decision the “rape and murder of democracy”. Soren resigned from the Union Cabinet to become Jharkhand chief minister. The PM once again took the charge of the coal ministry.

    7 March 2005: With the change of guard at the coal ministry, Parakh once again tried to revive the auction policy. He sent a note to the PM stating that decisions on all applications received till 28 June 2004 would be taken by the end of March 2005 and if the auction policy was not put in place quickly enough, pressures would once again mount on the government to continue with the existing procedure. Parakh wrote such a scenario “might not be desirable in the interests of bringing about total transparency in allocation of coal blocks”.

    16 March 2005: The PMO asked Parakh to update the draft Cabinet note and send it back urgently.

    24 March 2005: The PMO approved the draft note after which it was circulated to different ministries like power and steel for their comments. The views of state governments were also sought.

    21 June 2005: Parakh placed the draft Cabinet note incorporating the views of various state governments and comments of other ministries before Rao for approval of the prime minister.

    4 July 2005: Rao wrote to the PM that the power utilities were reluctant to participate in competitive bidding due to cost implications and that the auction policy needed to be considered in greater detail. But what he didn’t elaborate was that there were also many Central government ministries, departments and state governments that were in favour of auction. The Planning Commission, Ministry of Mines, Department of Expenditure under the Ministry of Finance and the Ministry of Steel were in favour of competitive bidding.

    25 July 2005: The PMO decided that to effectuate the auction procedure, the Coal Mines (Nationalisation) Act would need to be amended. In a scandalous move, it instructed the coal ministry to continue with the existing system since the amendment was “likely to take some time”. As a result, 24 coal blocks with reserves of 3,754 million tonnes, were allocated in 2005.

    ‘As coal minister from time to time, the PM could have put his weight behind the auction policy,’ said former coal secretary PC Parakh

    The rationale of this decision belies both legal and administrative logic. The Coal Mines Act, by which coal mining was reserved exclusively for the public sector, was enacted by the Indira Gandhi government in 1973. Later, the Act was amended to make provisions for allotment of captive mines to specified end users like manufacturers of iron and steel. The decision to allocate captive mines through a screening committee was taken by the Congress government through an administrative order in 1992. Thus the decision to change the allocation procedure to competitive bidding could also have been taken through an executive order. In fact, the PMO had referred the file to the law ministry on several occasions seeking its opinion on how to operationalise the auction route for coal block allocation. After giving express legal opinion on four different occasions between 2004 and 2006, the law secretary in August 2006 clearly stated that the “screening committee had been constituted by means of administrative guidelines. Since under the current dispensation, the allocation of coal blocks is purely administrative in nature, it was felt that the process of auction through competitive bidding can also be done through such administrative arrangements”. Thus there was nothing stopping the government from changing the screening committee procedure to auction. And later, the same could have been put on a higher level of legal footing by making amendments in MMDRA or the Coal Mines Act.

    HOWEVER, WHEN there were no legal impediments, they were manufactured by people in the PMO and coal ministry to continue with an opaque and corruption-ridden coal policy.

    12 January 2006: When the amended draft Cabinet note (proposing auction policy via amendment in the Coal Act) was again placed before Rao, the minister stated that “there was no immediacy in the matter and that the note be resubmitted at an appropriate time keeping in view the issues involved.” But while Rao tried to put the policy change on the backburner, the correspondence between the PMO and the coal ministry reveals that the PM kept pressing for the submission of the Cabinet note. On the other hand, the JMM chief, who had to resign within nine days of taking over as Jharkhand chief minister as he had failed to prove his government’s majority in the state Assembly, had again started lobbying for the job of coal minister.

    29 January 2006: Soren was once again handed over the coal ministry.

    In October 2004, Dasari Rao wrote to Parakh that the competitive bidding policy should not be pursued any further

    7 April 2006: In a meeting held in the PMO, it was decided that the system of competitive bidding would be made applicable to all minerals including coal via an amendment in the Mines and Minerals (Development and Regulation) Act, 1957.

    27 April 2006: Rao wrote on the file that “the issue to amend the MMDR Act should be revisited as it involved withdrawing the current powers of the state governments and had the potential to become a controversial issue”. The same day, Soren seconded Rao’s opinion and wrote that “the views expressed by the minister of state were appropriate and the ministry of coal should refrain from making suggestions, which had implications for federal polity”.

    Because of constant obstruction by Soren and Rao, it took another two years before a Bill to amend the MMDR Act, 1957, was tabled in Parliament on 17 October 2008. In the meantime, 53 coal blocks with 17,792 million tonnes of reserve were allocated in 2006, 52 blocks with 11,862 million tonnes of reserve in 2007, 24 coal blocks with 3,550 million tonnes of reserve in 2008 and 16 coal blocks with 6,893 million tonnes of reserve in 2009 were allocated without competitive bidding.

    The MMDR Amendment Act, 2010 was passed by both the Houses of Parliament in August 2010. However, till date, not a single coal block has been given through auction. Dasari Rao failed to respond to repeated efforts made by TEHELKA to have his side of the story. JMM chief Soren’s office also refused to comment on the matter.

    While Rao tried to put the policy change on the backburner, the PM kept pressing for submission of the Cabinet note

    SO FAR, the government has defended its coal policy by arguing that revenue maximisation was never its objective; it wanted to support industrial growth by ensuring the availability of coal to key sectors like power, steel and cement and also to keep their prices low. “The coal policy was perfectly alright. Coal blocks were given to power projects and manufacturers of other end products like steel and cement,” says Minister of State, PMO, V Narayanasamy. “If we had auctioned coal, the prices of power, cement, steel, etc, would have gone up and hurt the consumer.” But a closer scrutiny lays bare the hollowness of these arguments.

    As per the admission of Union Coal Minister Sriprakash Jaiswal (see interview), coal production has not yet begun in 80 percent of the allocated coal blocks. So, at first blush itself the government’s rationale that had it not allocated 155 coal blocks, the industry’s coal requirements would not have been met, gets demolished. “Most coal reserves allocated to private players have not been utilised. However, the private companies have used these allocations to ratchet up their share prices in the stock market. These coal block allocations to private hands has only led to corruption,” Rajya Sabha MP and senior CPM leader Tapan Sen told TEHELKA.

    ‘Private companies used coal allocations to ratchet up their share prices in the stock market,’ says Tapan Sen, MP

    In the case of the allottees who have actually begun production, there is little evidence to suggest that they have passed on the low coal production cost to the consumers. Dozens of power projects were given captive coal mines. Most of them have not entered into power purchase agreements (PPA) with state governments. A few plants that have become operational, are operating as Independent Power Producers (IPPs) selling power at a lucrative rate of Rs 10 to Rs 12 per unit in the short term market, thus making stupendous profits.

    The report of the Ashok Chawla Committee on Allocation of Natural Resources has remarked on page No. 23 (TEHELKA is in possession of a copy of this report, though the government has still not made it public) that “actual prices based on recent competitive bids for power show that bids received for power plants running on imported coal are actually priced quite competitively relative to their domestic counterparts”.

    ‘Production is yet to start in 80 percent of the allocated blocks’

    UNION COAL Minister Sriprakash Jaiswal is the man on the hot seat. In a candid interview, the minister tells Ashish Khetan why the competitive bidding policy was put on the backburner for six years after it was recommended, and why in spite of it being operational since 2010, there are still no policy guidelines in place.

    Sriprakash Jaiswal

    Photo: Shailendra Pandey


    Your government has justified the giving away of captive coal blocks claiming that had it not done so, the prices of power, steel and cement would have risen. Statistics show that in a majority of the blocks allocated by the UPA, allottees have not even begun production.
    Why a majority? In 80 percent of the blocks, production is yet to start. A lot of these blocks have had problems related to forest clearance and land acquisition. We understand where there are genuine problems. However, we are also worried of cases where the problems do not seem genuine. We have created an inter-ministerial group to examine the cases where the companies have willfully not started coal production. The investigation is on.

    Don’t you think that the policy objective itself has been negated because of the prolonged delay in coal production by the new allottees?
    When we started giving out captive coal blocks, there weren’t any roadblocks. The problems arose later. Therefore, we cannot say that the policy itself was wrong. If you want to produce coal, you either increase Coal India Limited’s production or you allocate coal blocks (to private players). Production did begin in 20 percent of the allotted blocks.

    Your ministry has de-allocated a few blocks. What irregularities were found and what action did you take?
    The production never took off. Why didn’t it start? If they had genuine hindrances, we gave them additional time. Those who did not give satisfactory reasons came in for de-allocation.

    Have you identified non-serious players?
    There will always be non-serious players. The task to screen them lies with the inter-ministerial group.

    In 2004, a decision was taken in-principle that all future allocation would happen through competitive bidding. But the file kept doing the rounds of the PMO, the coal and law ministries. Why?
    This is because a few states that produce coal wrote to the Centre that the auction would result in increase of coal prices and impact the price of power.

    Which states?
    Rajasthan, Chhattisgarh, Jharkhand and West Bengal. In 2010-11, we called meetings with these states. We convinced them that all the money that comes out of bidding will be given to the states and the Centre will not keep a penny.

    This decision should not take six years.
    It did not take six years. The proposal came in 2006. The decision was taken in 2008. The UPA-2 came to power in 2009. It went to the Standing Committee. Usually, such decisions take two years. First the ministers from the states met. Once they agreed to the terms, the amendment Bill went to the Standing Committee. Then regulations were framed. No blocks have been allotted since the UPA-2 has come to power.

    Even after the policy was adopted, no blocks were made available for bidding…
    Rules and regulations had to be framed. Blocks had to be identified. This took 6-8 months. The bidding process might begin in another month or so.

    What is your view on the CAG’s argument of windfall gain?
    While examining accounts, auditing techniques do not reflect how decisions are taken in a democratically elected government. What is a windfall gain? If coal prices go up and in effect the price of power goes up, and people of the country don’t get affordable power, wouldn’t it then be our failure?

    But by your own admission, production never began in 80 percent of the blocks. So how has it helped in keeping the power prices down?
    How could have we predicted this kind of a result?

    Shouldn’t the government have had the foresight while giving away precious coal reserves?
    On hindsight, it is easy to comment on what we should have done. But the truth is that coal block allocations have been going on since 1993. If foresight had to be applied, it would have been applied in these 20 years. The BJP, who’s objecting the most today, allotted 35 blocks when they were in power. Other governments allotted nine blocks. Foresight was not applied by anybody. Realisation strikes only when you’re faced with the problem.

    A few power plants that have started coal production from their captive blocks are selling merchant power (power at lucrative rates in shortterm market).
    If they are doing so, then I’m sure nobody is going to buy power from them.

    But isn’t it true that in the power sector, power purchase agreements (PPA) and merchant power go side-byside as the exact demand for power is hard to predict. Therefore, the sellers of merchant power will always thrive because of the very nature of this industry. These players, after getting captive blocks, did not sign the PPA with state discoms and instead are earning stupendous profits by selling power at high rates.
    The Ministry of Power should look into it. It is not our ministry’s concern.

    But won’t you agree that overall it’s a collective failure of the UPA?
    People can criticise for the sake of criticising. Who is going to ask the BJP why they gave away 35 blocks?

    But you gave 155.
    During the NDA regime, there was not much demand. In comparison, we created a set of specific rules, invited applications and introduced stringent conditions. Only those who fulfilled all the criteria got the blocks. When the BJP was in power, there were no such conditions.

    It takes us to the same old argument of the 2G scam. They (BJP) introduced a faulty policy and we continued it.
    The 2G scam is different. If we don’t tap the coal reserves in our country and import expensive coal instead, it’s not a wise decision. But yes, keeping in mind the growing need for energy, we will need to import some coal. We are thinking of a system of a common pool of coal so that the import burden could be shared uniformly.

    The CAG report is going to be tabled in the monsoon session of the Parliament. How will you face this challenge?
    The country’s policies are not governed by CAG reports. Let the CAG object. We are not subsidising petroleum products as per any CAG set rule. It’s our country’s policy to subsidise diesel, petrol and LPG. We consciously made a policy to supply cheap coal so that power, cement and steel could be made available to people at cheaper prices.

    Do you have any empirical data which shows that captive coal blocks made an impact on steel and power prices?
    If you compare the rise in price of petroleum and power over the past 10 years, you’ll get the answer.

    But this is not because of supply of cheap power. This is because Stateowned power distribution firms are absorbing the losses. Together, the utilities are staring at a debt of close to Rs 2 trillion.
    But cheap coal has helped discoms in procuring cheap power.

    According to the draft CAG report, competitive market forces in the steel and cement sectors cannot ensure that the allotee would pass on the benefit of low cost of natural resources to citizens. “Any economist will tell you that prices are determined by demand and supply and not by the cost of inputs,” says a retired bureaucrat from the coal ministry. Recently, the Competition Commission of India slapped a fine of Rs 6,307 crore on 11 leading cement companies such as ACC, Ambuja Cements, Ultratech and Jaypee Cements for price cartelisation. The fact that cement companies were acting in coordination on price, dispatch and supplies further belies the government’s logic that the supply of cheap coal to sectors like cement and steel has benefited the end consumer.

    The government doesn’t have any data or empirical study to suggest that its captive coal policy has helped in keeping the prices of steel or power at a low level. Neither does it have any statistics to prove that steel or power manufacturers with captive coal blocks passed on the benefit of low cost coal to the end consumer.

    Ashish Khetan is Editor, Investigations with Tehelka.
    [email protected]

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    From Tehelka Magazine, Vol 9, Issue 32, Dated 11 Aug 2012



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