Coal scam: Cancelling allocations not the right solution

Nearly two years after the Comptroller and Auditor General (CAG) pointed out irregularities in captive coal block allotments, the Manmohan Singh government has finally admitted “something has gone wrong”.

The admission may have come as an effort to minimise the political consequences of one of the worst scandals India has ever witnessed.

So, what next?

While the Attorney-General’s admission to the Supreme Court was with reference to 26 allotments, the court mandated the CBI to probe all the allocations since 1993.

Considering the stern stance of the court so far, it is anticipated that a total of 64 blocks, allotted to private parties free of cost between 2005 and 2010 (the time period for the CAG performance audit), through the same arbitrary principles, may end up under the scanner.

While some of the allocations have already been cancelled, how the court deals with the rest is to be seen. Should it cancel all such allocations, as it did in the 2G scam?

Almost every senior functionary, within and outside the government, who had anticipated the scam while it was in the making and tried to caution the government, is unanimous that the guilty should face the stick. There is also unanimity that investing in developing coal blocks cannot be an excuse to defraud the nation. The CAG placed the loss to the government at Rs 1,85,591.34 crore.

“The 2G scam judgement was a strong signal to the guilty, both in business and politics. It should be repeated,” said an industry insider.

Price discovery But, a mere cancellation of allocations may lead to more problems. “If someone has invested in the end-use plant, he should be offered an opportunity to pay the market price of the coal asset and protect the interest of the steel plant,” said a seasoned miner.

His suggestion is simple. Let the concerned blocks be auctioned to discover the market price and the original allottee be given an opportunity to match the same.

If the captive miner has invested in regulated sectors such as power, the cost of mining can be recovered from the electricity tariff.

The case is far simpler for sectors such as steel and cement, which sell the final products at a market-determined price. Those who got the blocks by virtue of having the right connections at the right place will now be deprived of the opportunity to earn huge profits.

According to the CAG report that was tabled in 2012, very few allottees invested in end-use facilities.

Former coal secretary P.C. Parakh, whose numerous communications on the need to switch over to auctions left important clues for the CAG, did not advocate sweeping measures as everyone who had been allotted a coal block may not be guilty.

No Sweeping measures He felt a complete cancellation of allocations may have very serious implications for a nation that is increasingly dependent on coal imports.

“It takes 7-8 years to negotiate regulatory and administrative hurdles and develop a mining asset. To re-start everything may not be advisable,” says Parakh. According to him, “via-media-protection” (such as an auction) can be offered to ensure the country does not pay for the wrongs of an unscrupulous few.

COMMENT NOW