“The ministers did not show any interest on these issues. Their interest was primarily in faster allocation of coal blocks…. and grant of coal linkage although no coal was available for new linkage” writes former coal secretary PC Parakh in his memoir, Crusader or Conspirator? The ministers he refers to are Shibu Soren and Dasari Narayana Rao, who were part of former prime minister Manmohan Singh’s team.

What happened in coal block distribution is now partially in the open. The Supreme Court has cancelled the allotments, and a probe is on, into how industry colluded with ministers, MPs and even the Government in getting those assets. But when it comes to ‘linkages’ — the single most important reason behind the rise of sticky assets in the power sector — there is a deafening silence.

Linkage is an assurance from the Coal Ministry’s Standing Linkage Committee (SLC), headed by the additional coal secretary, for fuel supplies from the national miner, Coal India Ltd. There has been no scrutiny of how and why the Manmohan Singh government issued linkages to 1,08,000 MW of electricity generation capacities, in a span of three to four years from 2005, ignoring repeated warnings from CIL on actual coal availability.

Early warnings

The CIL management routinely declared the availability position before every meeting of the SLC. Yet, at each meeting, the distribution of linkages exceeded availability of coal by a wide margin.

No one, except perhaps those top bureaucrats in the SLC, could have missed the signs of a crisis in the making.

CIL had flagged the issue ahead of every SLC meeting since 2007. An alarmed CIL board (including government nominees) sounded a red alert to the government, in 2008. But the government was unfazed.

Just as in the case of the coal block allotments, many companies – including some with backgrounds in manufacturing making mouth-fresheners or developing real estate – queued up before the SLC, armed with paper proposals for investment in power generation and strong recommendations from ruling state politicians. The SLC went on distributing linkages, which are considered by bankers as a green signal to grant credit.

Many fly-by-night operators sold the projects at a premium. Serious investors and banks, ended up with stranded electricity generation assets.

Loans worth nearly ₹2,00,000 crore extended to such assets, scheduled for commissioning on or before March 2017, became sticky. There was no coal to fire them.

Were those in the SLC too naïve to know that bankers grant credit against linkages and a failure to service them would lead to sticky assets? Or was the system taken for a ride?

Mafia at work

Parakh doesn’t have much to offer on the linkage fiasco, presumably, due to his preoccupation with block allotments and because, the issue flared up after he demitted office in December 2005.

But he provides a vivid description of how the political mafia, cutting across party lines, dominates decision-making in the coal sector. Coal ministers openly demanded graft and parliamentary standing committee members threatened the CIL chairman to give choice postings to their cronies.

A former CIL director says the linkage issue is indeed the mother of all scams. It missed getting national attention because no asset was transferred. But it did more long-term damage to the economy than the arbitrary allotment of coal assets.

The scamsters in government fired from CIL’s shoulder..

There were desperate attempts by the government to force CIL to commit fuel supplies between 2011 and 2012.

Fortunately for the company, its independent directors displayed a rare example of corporate governance by standing up against such pressure.

The Government went on to get a Presidential decree. But the board refused to budge and agreed to cater to only half of the required fuel (65 per cent of the required quantities at 85 per cent capacity utilisation), which was in line with the 2008 board assessment.

The national miner was saved from greater haemorrhaging on its balance sheet. But the damage had been done.

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