All you wanted to know about Coal-gate

| Updated on November 25, 2017 Published on September 08, 2014



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Coal has been a red-hot topic ever since the infamous coal-gate scandal, as the media named it, was flagged by the Comptroller and Auditor General of India (CAG) in March 2012. The Supreme Court is set to rule on one of the aspects of the case today. After a long saga that involved the Prime Minister’s Office, Central Bureau of Investigation and many hearings, the Supreme Court has already declared two weeks ago that all the coal blocks allocated between 1993 and 2012 were illegal.

What is it?

Coal-gate is the moniker attached to the irregularities unearthed by the CAG in the allocation of coal blocks to private parties. The story goes like this. The Central government has a monopoly over all coal reserves in the country, as per the Coal Mines Nationalisation Act of 1973.

However, with Coal India struggling to produce coal from the 1980s, power producers and industries such as steel and cement were in pain. So a new policy was announced in September 1993 to allow private and public sector companies to mine coal for captive use.

The new policy set up a screening committee to recommend who got the blocks, based on certain guidelines. Around 70 coal blocks were allocated between 1993 and 2005 and over double this number were allocated in the next four years.

Even as allocations slowed post 2009 and there were rumblings of controversy, a CAG report in March 2012 added fuel to the fire. The CAG said that the mode of allocation of coal blocks to private parties was subjective and lacked transparency. It also held that the ad-hoc allocations (in place of transparent auctions) of coal blocks to private firms, had caused a whopping loss of ₹1.8 lakh crore to the exchequer. A new policy based on auctions was duly adopted in September 2013, but controversy continued to cloud the older blocks and the issue went to Court.

Why is it important?

A transparent mechanism to pep up coal output is vital to keep the economic engine chugging. Although India ranks fifth in the world when it comes to coal reserves, output has suffered. In 2013-14, for instance, Indian output of 566 million tonnes (mt) was less than the demand of over 720 mt. Importing burns up precious foreign exchange — the coal import bill has more than doubled in the last five years to ₹95,175 crore in 2013-14.

The cost of coal has a crucial bearing on inflation too, via industries such as power, steel and aluminium. Having a dependable coal resource close to where it is consumed will reduce overall costs. Hence, coal resources must be handed out with a eye to greater national interest.

Why should I care?

As a citizen, lack of transparency and favouritism when dealing with precious natural resources is a cause for concern. Also, as a consumer, it is not fair that private power companies that won access to low priced coal were not passing on the benefits to power buyers. You have plenty of reason to worry about coal if you are a stock market investor. For scores of private sector power, aluminium and metal companies are mixed up in coal-gate. Many of their projects could become unviable without captive coal.

The bottomline

Coal-gate is a reminder that if you’re doing business in India and dealing with the Government, the long arm of law can dig up issues even after decades.

Published on September 08, 2014
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