The Coal Block Allocation events, their implications and the road ahead

The recent exposure of the supposed coal gate scam by the CAG has left many people speechless and has further questioned the ever decreasing trust of the citizens on the political system since independence. There are a lot of questions in the minds of the our fellow brothers and sisters, some of which are as under
– The CAG estimates the loss to be around 1.86 lac crore which is disagreed by those in the government: Did we really suffer a loss in monetary terms of this magnitude?
– Was an attempt made by the bureaucracy of the country to move towards a process of competitive bidding or not?
– Should only one party be held responsible or was the opposition also involved?
– What are the opinions and counter opinions to this whole saga?
– What can we infer?
As we ponder about these questions, it will be great to know what the CAG report has to say!
The CAG report (released on Aug 17, 2012) on Performance Audit of Allocation of Coal Blocks and Augmentation of Coal Production had the following points to share with the country
– The rate of increase in production of coal by Coal India Limited remained below the target envisioned in the 11th five year plan by the Planning Commission; the main reasons for this were inadequate drilling capacities, backlog in overburden material, mismatch between excavation and transportation capacities
– The de-reservation of 48 blocks of coal and allocating them to captive consumers was done by the Ministry of Coal to increase production but the move did not yield the desired results (till now) as production has not yet started in these blocks
– It was observed in some cases that the captive blocks allocated led to reduction in total mineable reserves for some projects and reduction in project life for some projects of CIL which is divergent from the guidelines for captive coal block allocation which stated that,
“the blocks offered to private sector should be at reasonable distance from existing mines and projects of CIL in order to avoid operational problems”.
– The Screening Committee recommended the allocation of a coal block by way of minutes of the meeting of Screening Committee. The minutes did not give any evidence of a comparative method that would have been used to allot the coal blocks and did not indicate the methodology used to evaluate each of the applicants. Thus the method followed was not transparent.
– Although the concept of competitive bidding for coal blocks was first introduced on June 28, 2004, the exact procedure to be followed for competitive bidding is yet to be finalized.
(the next part of this blog covers what exactly happened in these seven and half years)
– The Honorable Supreme Court in the judgment on 2G spectrum had directed to introduce transparency / competition in allocation of scarce resources. So, the attempts of the Ministry of Coal to introduce transparency/competition in the allocation of coal blocks was in line with that
– The CAG report believes that as a result of the delay in introducing competitive bidding process there has been a loss of INR 1.86 lac crore to the GoI
– Captive coal mining is a mechanism envisaged to encourage private sector participation in coal mining however the production of coal from captive mining has not been encouraging instead of the intended 73.00 mn tonnes from such blocks during 2010-11 only 34.64 mn tonnes of coal could be produced
– To ensure timely production from coal blocks the Ministry of Coal introduced the concept of bank guarantee in March 2005. Upto June 2011, 24 blocks were de-allocated for lack of initiative by the allottees in developing them
It was recommended (in Jan and Feb 2011) that for 15 allottees deduction in Bank Guarantee should be there for lack of initiative in developing the coal blocks, however the MoC could not encash these BGs as the modalities of the encashment were still to be worked out. The amount of lapsed BG worked out to be INR 318.81 crore against the 15 blocks which needed to be renewed.

The CAG recommended that
– There should be an empowered group along the lines of Foreign Investment Promotion Board as a single window mechanism with representatives of Central and State Government ministries to grant the necessary clearances such as mining lease, mining plan, forest clearance, environment management plan and land acquisition for accelerating the procedures for commencement of production.
– The Ministry of Coal should evolve a system of giving incentives to encourage production performance from captive coal blocks & disincentives to discourage non performance and should work out the modalities of competitive bidding soon
– The targets for Coal India Limited should be fixed in line with the targets fixed by the Planning Commission

Now let us have a look at why did it take us so long to move from an opaque process for coal block allocation to competitive bidding.
– The concept of competitive bidding first came into picture on June 28, 2004 and around a fortnight later the then Coal Secretary put up a note in front of the Minister of State in this regard
– Then Coal Minister asked for the preparation of a draft cabinet note for the Cabinet (for consideration and decision)
– The PMO on Sep 11, sent a note detailing the disadvantages of competitive bidding which was rejected by the Coal Secretary
– The Coal Secretary’s view was rejected by the Minister of State on October 4 (saying that competitive bidding will delay the allocation process further and that the steering committee can ensure a transparent allocation process)
– It was decided within a few days that all applicants by June 28, 2004 should be allocated based on the current policy
– In early March 2005 the coal secretary again reminded through the draft cabinet note that if the revised procedure for allocation was not put in place, pressures would again mount on the government for discontinuing the present procedure
– On July 25, the PMO called a meeting where it was decided that the Ministry of Coal would amend the Cabinet note yet again incorporating the concerns of State governments
(State Governments irrespective of political parties had concerns with the competitive bidding process and were not very supportive to get it implemented soon)
– Since the amendments would have taken time it was decided to continue with the existing procedure of allocating blocks for captive mining through the screening procedure
– In January 2006, the Coal Ministry asked permission for continuing with the existing mechanism since it would have taken time to make amendments to the Coal Mines Act
– In March a meeting was held in the PMO wherein it was decided that instead of just coal, all minerals covered in the MMDR (Mines and Minerals, Development and Regulation) Act 1957 should have competitive bidding process applied on them and requisite amendments should be made in the MMDR Act for the same
– Coal Secretary approved the draft note to the Ministry of Mines with a request to obtain the Department of Legal Affairs’ comments on March 20, 2006
– The Coal Minister agreed to MoS’s opinion that the decision taken to make ammendments to the MMDR act needs to be revisited as it involved withdrawing current powers of State governments and could become controversial, citing federal polity. All this happened within a span of 7 days.
– In mid-September, the Coal Ministry conveyed to the PMO and the Cabinet Secretariat that the Law Ministry has advised to initiate suitable measures for amending the MMDR Act — for facilitating competitive bidding. This led to a complete halt in any progress that was being made till October 2008
– The MMDR (Amendment) Bill was introduced in Parliament by the Mines Ministry in October and was referred to the Standing Committee on Coal and Steel on October 31, 2008. The Standing Committee submitted its report with certain recommendations after three and half months after which there was not movement for six months.
– On Feb 18, 2010 during the budget session the Mines Minister moved a motion for passage of the MMDR (Amendment) Bill
– Till September 9 there was no movement when the MMDR Act was notified in the gazette after having being passed in both Houses of Parliament during the monsoon session
– On September 22, 2010, the Coal Secretary chaired a meeting of the representatives of the Ministries of Power, Mines, Petroleum and Natural Gas, Steel, the Department of Industrial Policy and Promotions and Planning Commission to finalize the modalities for competitive bidding.
– Draft bid documents were discussed at the meeting of the committee on January 31, 2011 and six months later, on July 25, a meeting was convened by the Coal Minister with various stakeholders to discuss the issue of competitive bidding. Six months later, the amendment of the MMDR Act, rules for auctions by competitive bidding of coals mines was notified.

Here is an image which illustrates the current status of the coal blocks

What do the ruling coalition and opposition parties have to say about the whole saga?

– The Ministry of Coal has denied that there has been a loss of the amount mentioned by the CAG report to the national exchequer.
It has mentioned in its replies that the process of coal allocation that was being followed was in place since 1993 and the delays in implementing the allocation of coal blocks using the process of competitive bidding was due to several reasons some of which are
* Strong opposition from the coal rich state governments in arriving at a consensus for following the process of competitive bidding
* The Ministry of Power’s viewpoint that this could lead to enhanced cost of producing electricity which might affect the end customer
* The Department of Legal affairs arrived at the conclusion that the process can be achieved by administrative instructions and amendment to the Mines and Minerals (Development & Regulation) Act.
If administrative instructions would have been followed instead of going through the legislative procedure it would have been undemocratic and contrary to the spirit of the functioning of the federal polity.
It has also stated that the allottees were selected on these parameters
* Techno economic feasibility of the end use of project
* Status of preparedness in setting up the end use project
* Past track record in execution of project
* Financial and technical capabilities of the applicants
* Recommendations of the State Governments and the Administrative ministry involved

– The opposition has been extremely forceful in its opinion that the ruling party has received huge kickbacks in this whole exercise and has said that GoI questioning CAG’s methodologies and the points in the CAG report is unconstitutional behavior on the part of the Government and is an attack on both a constitutional authority and the constitution. It has halted the parliament to proceed and has demanded the resignation of the Prime Minister before any discussions can happen in the Parliament.
Some of the state governments which are ruled by opposition parties though have agreed that they recommended firms but said the final decision on the process to be followed was in the hands of the government.

There are both opinions and counter opinions to this whole saga.
Opinion:
Some are of the opinion that since CIL was not able to ensure complete utilization of the coal it made sense for the Government to allow private use of coal and since the process of allocation through competitive bidding was taking time
It made sense for the Government to follow the procedure that was being followed and allot the coal to private applicants.
There is also an opinion that unlike the 2G scam, the coal has not been resold to third parties. And since coal is primarily used to produce power whose price is regulated by the state, therefore the chance of making windfall profits is constrained.
And if coal prices are to be decided by market should not power prices also be de regulated (with immediate effect) which is the backbone of economic development and upliftment.
Counter Opinion:
As is already stated above due to a lack of transparent process in the allocation and the severe delay in implementing the same, many are of the opinion that there has been a huge loss to the citizens and malicious acts on the part of people in power cannot be ruled out.

What can we infer?
We can infer that there has been a lack of transparent process in the allocation of coal blocks and lack of speedy formulation and implementation of a transparent methodology for allocation of coal blocks, but to say that the country has suffered a loss of 1.86 lac crore is yet to be substantiated. 1. 86 lac crore can be the difference in the price at which the blocks have been allocated and the market price of the coal blocks but then it needs to be thought out, should coal blocks be allocated purely at market prices by bringing in a sudden change in the allocation policy?
Or should there be a gradual deviation from the current procedure to a more transparent policy in the future.
1.86 lac crore may not be the loss but there is no denying the fact that the way the current allocation has been done has kept the citizens in the dark and we need to move away from it sooner rather than later.
A more transparent process might have led to greater realization of the actual value of the coal blocks for the Government of India .
Let us hope that we soon have a more robust coal block allocation policy in place which keeps the trust of the citizens of India and at the same time ensures societal upliftment as well. “We also hope that only those allottees who have not lived upto their promises on coal production and do not meet the norms laid out, their allocations should be cancelled so that the loss is minimized (the allocation should not be cancelled for all because it will decrease the industry’s confidence while investing which is very essential for a sound economic growth of the country). We also hope that those blocks on which production has been delayed due to bureaucratic procedures begin production soon and other blocks too begin optimum production soon so that the main objective of allocating these blocks is achieved.”

We would like to hear what you have to say about the whole sequence of events!! Please leave your comments here or mail us at contactus@netapedia.in

9 thoughts on “The Coal Block Allocation events, their implications and the road ahead

  1. The article has been very well written and articulate. It is sourceful yet simple piece of articulation by the writer.
    Though in ‘we can infer’ section, writer has talked about lack of transparency in allotting coal blocks but forgot another key part of misgovernance, i.e. delay in passing a law.
    It took the government 5 years to notify the process of competitive bidding from 2006 when it actually was proposed. It sums up the way babudom functions.

  2. Thanks a lot Robin for your comment.
    Yes, we agree we should have written the delay part in the we can infer section too (which we have mentioned above). Thanks for correcting us.

  3. Very well written! The timeline makes it easy to follow the events. A good compilation of various aspects of the coalgate scam in a lucid language. Hence a reader with no prior knowledge of the scam can easily grasp the complexity. Thank you for this informative blog. And keep up the good work!! :)

  4. the article has been written in a very structured and easy to understand manner. its a very good and lucid presentation of the coalgate scam.kudos to the content developers

  5. Very well written! This must shut up the media which is going into a frenzy on 1.86 lakh crore rather than concentrating on core issues with respect to the report.

  6. Pingback: India: Is the 'coal'gate scam a new low in UPA's governance? - Quora

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