The real scandal in the allocation of coal blocks for captive mining without any competitive bidding is not the financial gain of Rs 186,000 crore to private parties, as reckoned by the Comptroller and Auditor General of India (CAG) for such mines awarded during 2004-09. This is only a presumptive estimate, based on the total extractable reserves of these blocks; it assumes this entire coal getting mined and sold at the prevailing market rates. The actual ‘scam’ does not lie there. Coalgate is more about mines being allocated to ostensible end-users for their captive requirements, and the allottees, rather than producing, simply squatting on them. This aspect comes out even in the CAG’s report, which shows mining happening in only 28 out of the 86 captive coal blocks (private plus public) that were scheduled to take up production during the five-year-plan period ended 2011-12. And they produced not even half of what was targeted from these blocks.

Viewed from this perspective, Coalgate is a more serious scam compared with the so-called first-come-first-serve allocation of 2G spectrum. In the latter case, the mobile operators, who got the licences without bidding through a transparent auction process, at least launched services or sold the spectrum for others to do so. Even if the exchequer was left poorer, the consumer benefited from call charges dropping because of the entry of new players. Coalgate, by contrast, has done little by way of augmenting the country’s coal output or ensuring uninterrupted fuel supplies to power plants. The whole purpose of allowing captive mining and expediting allocation of blocks – even if that meant giving the go-by to auctions –was to boost production in the short to medium run. There was also an additional consideration here, linked to commercial coal mining in India being reserved for the public sector. Since permitting private commercial mining would have required amending the Coal Mines (Nationalisation) Act – a politically sensitive and time-consuming affair – the captive allocation route was projected as a practical alternative.

But from the CAG report, it emerges that the inability to push through the amendment was just a convenient smokescreen for persisting with the ‘policy’ of awarding coal blocks for captive use without any transparent method of selection. Even when it came to allocation for captive purposes, there was nothing stopping the Government from doing so through competitive bidding, as was proposed by the Coal Ministry in July 2004 and even endorsed two years later by the Law Ministry. Clearly, those benefitting from its non-implementation despite all this had an equal interest in blocking the legislation ending the public sector’s monopoly in full-fledged commercial coal mining. And since these entities got the blocks cheap, with hardly any penalties for not meeting production milestones, they had more reasons to squat than develop the mines. At the nation’s expense, of course.


‘Coalgate’ is a worse scam than 2G, where at least consumers benefited through increased competition and lower call charges.


(This article was published in the Business Line print edition dated August 20, 2012)
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