What the coal scam is all about

The report of the Comptroller and Auditor General of India (CAG) on coal block allotment to private parties amounts to a very damaging accusation of financial irregularity.

Unlike some other scams — such as the much-publicised securities scam, fodder scam or even the latest 2G scam — where a section of the business and politics class stood to gain, ‘coalgate’ can unsettle the high and mighty across the board. Hence, there are strong doubts about whether the beneficiaries of this staggering scam will ever be taken to task. The indications were clear in the rejoinder issued by the Union Coal Minister Sriprakash Jaiswal last week, elaborating the roadblocks in introducing competitive bidding for block allotment.

HOW IT HAPPENED

States such as Rajasthan, Chhatisgarh and West Bengal have opposed a bidding process, Jaiswal said. This has left the state dispensation route — a major source of corruption — open. Examining the parties in power in these States since 2004, it is obvious that political groupings across the ideological spectrum — Left, Right and Centre — are allegedly involved in the scam.

Similarly, the industry players who secured coal blocks were from varied backgrounds — including those with no track record in power generation or even manufacturing. Yet, they managed to secure coal blocks against proposed projects.

The route was simple: take the state leadership into ‘confidence’ and they would, in turn, recommend the name for block allocation. A little known Kolkata-based company, for example, promised huge capacities in Chhatisgarh.

What the Central Minister did not say is that till date the political class, cutting across ideology, is yet to come to terms with the decision to auction blocks. And, it has sufficient reasons to be ill at ease with the idea.

It is with political connections that certain corporates managed to acquire access to natural resources. The list of consortium members in blocks makes it clear that there are many who do not have any ‘business’ to be there.

The real beneficiaries were big players. A rough assessment shows that a couple of industrial houses, as mentioned by the CAG, bagged a lion’s share of blocks. The Centre cannot deny responsibility, as attempted by Jaiswal, for awarding blocks free of cost for merchant power generation, thereby helping private players earn a windfall profit. And, we are not talking about coal blocks allotted to firms with power purchase agreements and captive generation plans.

GOVERNMENT’S ARGUMENT

In its defence, the Government now refers to the urgent need to step up coal production and fuel economic growth.

And, since Coal India (CIL) was not in a position to cater to the projected demand, policymakers were forced to draw an ‘emergency plan’ to ramp up production. Assets which were yet to figure in the CIL’s development agenda were dished out to captive users.

Between 2004 and 2009, a committee headed by the Union Coal Secretary, distributed nearly 150 blocks, more than two-thirds of the total of 215 blocks allotted since 1993.

The beneficiaries were selected by a screening committee based on project planning. A share of assets went to nominees identified by the State Governments. Under the current legal dispensation, where CIL is the owner of all coal resources, it was argued that charging the beneficiaries a price for being allotted the coal blocks was not possible.

Natural resources were given free of cost.

The Centre may use this argument, of coal being a nationalised resource, to counter the allegation that it deprived the nation of substantial revenues that could have been generated through auction. “There could not have been a better policy than this,” the Coal Minister has been quoted as saying.

The underlying argument is: to auction the blocks the government needed to amend Mines and Minerals (Regulation and Development) Act. And, given the track record of the coalition politics, any such amendment could have been inordinately delayed.

Even if we accept this argument, Jaiswal’s contention that the process of allotting blocks has been transparent rings hollow. It is true that the process adopted post-2004 was better than the practices followed during 1993 and 2004, when 60 blocks were doled out without any non-performance clause or earnest money. The broad-basing of the screening committee also helped to reduce the element of ad hoc selection.

But, why did the government not restrict such allotment only for commercial power generation, ensuring that such electricity be available to the nation either at a regulated price or through PPA with designated distribution utilities? This simple measure could have ensured ‘power for all’ at an affordable price.

On the contrary, captive blocks were granted to steel, cement, merchant power and even downstream industries such as ferroalloys. They pocketed the benefit of getting coal free of cost. Some fly-by-night operators even monetised the benefit by selling their project plans to serious players.

DELIBERATE OMISSION?

And, going by the chain of events, the murmur of opposition voices — even within the screening committee — against such largesse, one may argue that some omissions were deliberate.

What’s worse, only one of the 57 blocks allotted to private sector is developed and is in operation (the figures are just a shade better for the public sector).

The bottom line: the nation was not merely deprived of revenues against allotment but also of the required coal production (which was the cornerstone of the argument in favour of such ad hoc distribution of assets free of cost) — and is now paying for imports.