In it’s judgement yesterday, the Supreme Court came down heavily on the central government on how it went about giving away “coal blocks” free to private and public sector companies between 1993 and 2011. The central government during the period gave away 195 coal block with geological reserves amounting to 44.8 billion tonnes.
The decision to give away “coal blocks” was taken through a screening committee. The Supreme Court in its judgement clearly says that “no objective criteria for evaluation of comparative merits” of companies to which these coal blocks were allocated, was followed by the Screening Committee. And hence it declared all the coal blocks that were given away for free as “illegal”.
As the Supreme Court puts it in its judgement “The entire exercise of allocation through Screening Committee route…appears to suffer from the vice of arbitrariness and not following any objective criteria in determining as to who is to be selected or who is not to be selected. There is no evaluation of merit and no inter se comparison of the applicants. No chart of evaluation was prepared. The determination of the Screening Committee is apparently subjective as the minutes of the Screening Committee meetings do not show that selection was made after proper assessment. The project preparedness, track record etc., of the applicant company were not objectively kept in view.”
These are basic steps that need to be followed in case of allocation of any project. The Supreme Court judgement goes on to point out several examples where the exercise of allotting coal blocks through the Screening Committee seems to be arbitrary.
In fact, former coal secretary P C Parakh (who took over as coal secretary in the second week of March 2004) writes in Crusader or Conspirator—Coalgate and Other Truths that as the number of applicants for coal blocks kept growing beyond a point being objective about the allotment was simply not possible.
As he writes “by the time I took charge of the ministry, the number of applicants for each block had increased considerably although still in single digits. I found a number of applicants fulfilling the criteria specified for allocation of each block on offer. This made objective selection extremely difficult.”
He further writes “According to CAG’s report, 108 applications were received for Rampia and Dip Side of Rampia Block [names of two coal blocks]. I found it difficult to make an objective selection when the number of applicants was in single digits. How could the Screening Committee take objective decisions when the number of applicants per block had run into three digits?”
Also, it is worth remembering here that all coal blocks were not the same. Coal could be mined at a cost of Rs 300 per tonne in a good open cost mine. On the other hand it could cost as high as Rs 2000 per tonne in an underground mine. The quality of coal would also vary. Hence there was an “enormous scope for favouritism and corruption” when allocating the block.
In fact, Parakh goes on to list several reasons on why giving away coal blocks free for captive mining by companies just did not make sense. By giving away coal blocks for free, companies which had no experience in coal mining were getting into a totally unrelated field. The government had no way of monitoring whether the captive mine was being used for captive use. Or was the company, which had got the coal block, selling the coal it was producing in the open market and thus “promoting corruption and black money”. Further, the system of allocation of coal blocks for free was discriminatory. It offered a huge premium to companies which managed to get a free coal block, in comparison to ones that did not.
Given these reasons, in August 2004, Parakh proposed to Manmohan Singh (who had taken over as coal minister after Shibu Soren resigned) that the allocation of coal blocks should be done through competitive bidding. In fact, even before Manmohan Singh had taken over as coal minister from Soren, Parekh had called for open house discussion of the stakeholders in June 2004. This included the business lobbies FICCI, CII and Assocham. Several other ministries whose companies had applied for coal blocks were invited. So were private companies.
Parakh writes that most of the invitees were not in favour of competitive bidding for coal blocks. As he writes “not many participants were enthusiastic about open bidding. Their main argument was that the cost of coal to be mined would go up if coal blocks were auctioned.” This is an argument still made every time someone suggests that the government should auction natural resources and not give them away for free.
Assuming that business men bidding for coal blocks (if such a process were to be introduced) would drive up the price of coal to astronomical levels is suggesting that they are stupid. As Parakh writes “Participants at open auctions are hard-headed businessmen with an acute sense of profitability. They do not make irrationally high bids. The price at which coal from CIL[Coal India Ltd] was available would automatically put a cap on the bid amount.”
The industry ultimately resisted open bidding simply because until then they had been getting coal blocks for free. And if something is available for free why pay for it. “To an extent, it was a reflection of corporate India’s aversion to transparency,” writes Parakh.
Nevertheless, Manmohan Singh approved allocation of coal blocks through competitive bidding on August 20, 2004. Immediately, the protests started. Letters started pouring in from MPs opposing the competitive bidding process.
Among those who opposed the process was Naveen Jindal, “who had considerable interests in coal mining”. In a television interview Jindal argued that all over the world mining properties are given away for free. The government then earns money through royalty and taxes. Parakh explains why this is bunkum: “I am not aware of any country where fully explored mining properties are given free. What are being given away free are virgin areas with minimal geological information where large amounts of money has to be sunk as risk capital in carrying out exploration, which may or may not result in a commercially minable discovery.”
Parakh writes that Dasari Narayana Rao, the Telgu film director, who was then the minister of state for coal, also tried his best to scuttle the move. He was helped in this by Shibu Soren, who was also coal minister for a brief period. Finally, after several ups and downs the proposal of open bidding for coal blocks did not see the light of day.
Parakh concedes that there was no political will in pushing through a transparent process for allocation of coal blocks. Manmohan Singh had his hands tied to some extent due to the compromises that a coalition government has to make. But if he could push through the Indo-US nuclear deal despite the opposition and open up FDI in retail, he could have also pushed through the opening up of the coal sector, which he did not. Given that and the fact that he was the leader of the Congress led UPA government, when the most free coal blocks were given out, the ultimate responsibility for the current mess in the coal sector, lies with him. But the blame cannot completely lie with him, as
we have seen earlier in this article.
Also, the government told the Supreme Court during the course of proceedings that “the auction of coal blocks could not have been possible when the power generation and, consequently, coal mining sectors were first opened up to private participants as the private sector needed to be encouraged at that time to come forward and invest. Allocation of coal blocks through competitive bidding in such a scenario would have been impractical and unrealistic.”
By the same logic telecom companies should have got the spectrum for free, which they did not, when mobile telephony was first introduced in the mid 1990s. As Parakh writes “Had we opened up coal mining to private sector for commercial mining, along with power sector, in the early 1990s, we would by now have at least half a dozen large coal mining companies in the private sector. This is what happened in the telecom sector.”
What we have instead is a huge coal shortage. In 2014-2015, India’s coal demand is expected to rise to 787 million tonnes. The supply is around 200 million tonnes lower. And this is something that cannot be solved overnight.
The article was published on August 26, 2014 on www.Firstbiz.com
(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)