Coalgate

Coalgate: Why govt needs to plan for repercussions from SC’s final decision

coalVivek Kaul

More than a week back, the Supreme Court declared 218 coal blocks allocations made to private sector and public sector companies since 1993 as illegal. These blocks were allocated by the government over the years through the screening committee route.
The Court found the process of allocation of these blocks to be suffering “from the vice of arbitrariness”. Hence, it went ahead and deemed them to be illegal. On September 9, 2014, it reserved its final decision on the matter.
The attorney general Mukul Rohatgi told the Court that the “illegal allocations must go”. Nevertheless, he also requested that the Court could consider saving 40 coal mines which were already producing coal and six blocks which were on the verge of starting production. “Only a pocket of some 46 units can be saved,” Rohatgi told the Court.
The mines already in operation are expected to produce 53 million tonnes in 2014-2015, or around 9% of the country’s total coal production of around 590 million tonnes. The blocks allocated by the government through the screening committee route are for captive use. Hence, the company owning a mine is allowed to use the coal that it produces for the production of power or steel or cement. Any extra production that is not used needs to be handed over to the local subsidiary of Coal India Ltd.
A report in the Business Standard points out that the coal being produced in the 40 mines already in operation was being used to produce “26,000 Mw of power output and 12 million tonnes of steel.” Hence, it is in the interest of the nation that these mines need to continue production, even after the licenses issued to them are cancelled.
It will not be easy to replace this production by importing coal. Our ports will have a tough time handling this additional quantity of coal that will have to be imported. Over and above that, the Indian Railways is not exactly geared to be able to transport this coal from the ports to different parts of the country where it is required. The added infrastructure that will be required to handle the additional imports cannot be created overnight. Further, sourcing more than 50 million tonnes of coal from the international market will not be easy, and will push up the international price of coal.
And that explains to a large extent why Rohatgi told the Court that these mines need to be saved.
The question to ask here is why are some coal blocks been producing coal and others are not? The straightforward answer is that these blocks were allocated earlier than others and as a result commenced mining coal faster. As Senior counsel Dushyant Dave, appearing for one of the private parties, told the court that if the Court were to distinguish between 46 mines already producing coal or on the verge of producing it and other mines, it “distorts the level playing field”.
The Court will have to keep this factor in mind while making the final decision. If the Court decides to cancel all the coal-blocks then the government needs to ensure that the production in the mines already under operation does not stop. In order to do this Rohatgi suggested to the Court that if all the blocks are cancelled then Coal India should be allowed to operate the mines already under operation. Or the companies which own the block currently should be allowed to operate till the government auctions the mine.
Allowing Coal India to operate seems like a good idea on paper. Nevertheless, a few issues need to be figured out first to help Coal India seamlessly takeover these mines, once their licenses are cancelled. Coal India is a for profit enterprise and hence, it needs to be figured out who will bear the cost of operation during the period Coal India runs these mines. Further, will it be allowed to keep the profits it makes during the period it operates the mines? What if it makes losses on these mines?
As mentioned earlier these mines are captive mines which supply to other units primarily producing coal and power. Hence, during the period Coal India takes over these mines it will have to make arrangements for transporting coal from the mine to the unit where it will be used. These arrangements need to be figured out.
Further, Coal India will have to transfer its own employees to run these mines. Again, a lot of manpower in coal-mines is statutory and cannot be just transferred overnight, until a replacement is found.
Coal India’s production target for 2014-2015 stands at 507 million tonnes. As mentioned earlier, the 40 captive mines already under operation are likely to produce 53 million tonnes in this financial year. This amounts to around 10.5% of Coal India’s production. Hence, the number of employees that Coal India would have to depute to these mines would be a significant number. Given this, if the government is serious about this option, it should start with the groundwork on this front without waiting for the final decision from the Supreme Court. This can help save time and ensure that the production of coal continues.
Over and above this, companies which have been operating the mines have already invested a significant amount of money into these mines. If these mines are taken away from them, it is bound to put financial pressure on them and in turn, on banks which have loaned money to these companies. Nevertheless, if justice is to be delivered, this is something that cannot be avoided.
To conclude, the government needs to start working on a plan on how it will keep the production of coal going, if the Supreme Court decides to cancel all blocks that were allocated through the screening committee route.
The article originally appeared at www.firstbiz.com on September 11, 2014

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

Power crisis won’t be solved anytime soon: Why it’s difficult to turnaround the coal sector

coalVivek Kaul

In a column in The Indian Express published on September 9, 2014, Neelkanth Mishra, India Equity Strategist for Credit Suisse pointed out that “a large number of your power plants are running with less than four days worth of coal inventory…Even a flash strike would cripple India, let alone a prolonged confrontation.”
This when India has the third largest coal reserves in the world. Despite the enormous reserves we are unable to produce enough coal to meet the demand. During this financial year the demand for coal is expected to be at expected to be at 787 million tonnes. The supply is expected to be at 590 million tonnes.
The government of India had expected this rise in demand and in 1993 decided to give out coal blocks to public sector as well as private sector companies. The idea was that these companies will also produce coal and the country would have enough coal to meet the demand. These coal blocks had geological reserves amounting to 44.8 billion tonnes.
A bulk of these mines were given out starting in 2004, after the Congress led United Progressive Alliance came to power. The Screening Committee route which was used to give away these blocks was deemed to be fairly arbitrary by the Supreme Court in a recent 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.”
Given this, the Supreme Court deemed these allotments to be “illegal”.
On September 8, 2014, the government told the Supreme Court, that it had no objection if all the 218 coal blocks that were allocated through this route to the public sector as well as private sector companies are cancelled. Around 31 coal blocks that had been allocated currently produce coal.
At close to 53 million tonnes in 2014-2015, these blocks will produce around 9% of the country’s total coal production of around 590 million tonnes. If the licenses given to these blocks are cancelled, there will be a huge coal shortage. In a previous piece I had estimated that importing this coal from Indonesia will cost around Rs 17,300 crore, pushing up the power tariffs further.
One suggestion that has been put forward is that the government owned Coal India Ltd should take over the functioning these coal mines and ensure that the production does not stop. This seems to be a sensible thing to do, once the intricacies of who gets to keep the profits made from the coal being mined out of these mines, is decided.
Further, these coal blocks are likely to be auctioned in the days to come. As the PTI reports “According to sources, the Ministry of Power and Coal is planning to auction the blocks, allocation of which may be scrapped by the apex court, by the end of the fiscal. “The entire process of coal block auction will take at least 6 months,” the source said.””
While theoretically this sounds the best way forward, auctions may not be so easy to carry out. The Coal Block Auction draft guidelines were released on April 4, 2011. And nothing has happened since then. One reason obviously is the lack of work culture that prevailed during the previous Congress led UPA government. But there is more to it than just that.
As Neelkanth Mishra of Credit Suisse wrote in a research note released in March 2014 “The government has been planning to conduct coal block auctions for close to three years now (see link), but despite repeated pronouncements of it being a few weeks/months away, there has been little progress. In our view, the challenge is inadequate prospecting—the ministry may be apprehensive of the winning private bidder in an auction managing to increase reserves estimates within a short time frame. Such a development would create negative press and possibly trigger anti-corruption investigations. Thus, blocks are unlikely to be auctioned till reserves have been updated.”
This needs to be explained in a little more detail. The Geological Survey of India first carries out what is known as promotional drilling. This gives sort of a quick and dirty estimate of the total amount of coal reserves in a block. It is followed by detailed drilling carried out majorly by the Central Mine Planning Design Institute(CMPDI), one of the subsidiaries of Coal India. The Mineral Exploration Corporation also chips in. This round of drilling gives an exact estimate of the quantity of coal in the blocks along with other characteristics like quality, depth, gradient of coal seams, the ash content, volatile matter, water content etc. These parameters are used to prepare the proect report.
CMPDI currently is understaffed to carry out this exercise quickly enough. Experts believe that in order to carry out this exercise completely, it will take many years. Also, without a proper estimate of the amount of coal that can be mined out of a block, it is risky for the government to auction the block, given that it could later lead to litigation. Hence, it is important this exercise be completed properly. The mining of coal from these blocks can take a few more years after the completion of this exercise. Estimates suggest that it takes 10-12 years to get a coal mine going.
In fact, this mess could have been avoided if the coal blocks would have been allotted through competitive bidding, from the very beginning. In August 2004, PC Parakh had 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 in Crusader or Conspirator—Coalgate and Other Truths “not many participants were enthus
iastic about open bidding. Their main argument was that the cost of coal to be mined would go up if coal blocks were auctioned.”
Due to this and other reasons, the coal sector has landed up in a huge mess. And given the lack of supply of coal, power plants are not working to their full capacity. “Plant load factors for thermal power plants have been plummeting, and would be below 60% (i.e. going back to levels seen in the mid-1990s) if one includes capacity completed but not commissioned,” writes Mishra.
It is unlikely that the coal production and hence, power production are going to go up dramatically any time soon. The least that the government can do is to prevent further damage and act quickly to get the sector up and running, over the next five years that it is in power.

The article originally appeared on www.Firstbiz.com on September 10, 2014.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The coalgate mess: SC order shows UPA left our energy sector in a crisis

coal Supreme Court of India today delivered a judgement which is likely to have far reaching consequences on the energy scenario in India. In a judgement the court said “The allocation of coal blocks through Government dispensation route, however laudable the object may be, also is illegal since it is impermissible as per the scheme of the CMN Act (Coal Mines Nationalisation Act, 1973).
This essentially deemed illegal, the 195 coal blocks that had been allocated to public sector and private sector companies since 1993. These coal blocks had geological reserves amounting to 44.8 billion tonnes.
The decision to give away coal blocks free to the private sector was first made in 1993. The idea, as the Economic Survey of 1994-1995 pointed out, was to “encourage private sector investment in the coal sector, the Coal Mines (Nationalisation) Act, 1973, was amended with effect from June 9, 1993, for operation of captive coal mines by companies engaged in the production of iron and steel, power generation and washing of coal in the private sector.”
The idea sounded “laudable” at least on paper but the trouble was that “no objective criteria for evaluation of comparative merits” of companies to which these coal blocks were allocated, was followed. As the Supreme Court judgement put it “The approach had been ad-hoc and casual. There was no fair and transparent procedure, all resulting in unfair distribution of the national wealth. Common good and public interest have, thus, suffered heavily.”
Most of these coal blocks were allocated between 2004 and 2011 when the Congress led United Progressive Alliance (UPA) was in power. Data from the Provisional Coal Statistics for 2011-2012 points out that 156 of the 195 mines with geological reserves amounting to 41.24 billion tonnes of the total 44.8 billion tonnes, were allocated between 2004 and 2011. Hence, nearly 94% of the reserves were allocated between 2004 and 2011. Interestingly, Manmohan Singh was the minister of coal for a large part of this period between 2006 and 2009. During this period a little over 78% of the total 44.8 billion tonnes of coal reserves were allocated.
While the approach was adhoc, the move could have still benefited the country, if the companies to whom the blocks had been allocated had started producing coal quickly enough. Interestingly, during 2011-2012, these coal blocks produced 36.9 million tonnes. This amounted to around 6.8% of the total production of 539.94 million tonnes during the course of that year.
For the current financial year (i.e. 2014-2015) these mines are expected to produce around 52.93 million tonnes. This will be out of a total produce of around close to 590 million tonnes. The demand for this year is expected to be at 787 million tonnes.
Interestingly only 31 out of the 195 coal blocks currently produce coal. What this tells us is that most of the public sector and the private sector companies to which coal blocks were allocated haven’t started producing coal as yet. A major part of these blocks as mentioned earlier were allocated between 2006 and 2009. Given that its been a while since these blocks were allocated, and hence its surprising to see that only 31 out of the 195 coal blocks are currently producing coal.
This tells us a lot about the ground level implementation challenges in India.
What remains to be seen is the impact this judgement will have. At close to 53 million tonnes in 2014-2015, the captive blocks will produce around 9% of the country’s total coal production. It has to be ensured that this produce is not suddenly taken out of the equation because that can have disastrous consequences for the energy scenario in this country.
The Supreme Court also pointed out that “it is directed that the coal blocks allocated for ultra mega power project (UMPP) would only be used for UMPP.” Data shows the total amount of coal expected to be produced by UMPP in 2014-2015 stands at two million tonnes. Adjusting for this, the amount of coal being produced by coal blocks stands at 50.92 million tonnes (52.92 million tonnes – 2 million tonnes).
If this coal were to be imported, assuming a landing price of Rs 3400 per tonne of coal (if its imported from Indonesia) this would mean an additional expense of Rs 17,300 crore per year. In this scenario, power tariffs will go up further. This will in turn impact inflation and economic growth.
But it is not just about power tariffs. Our ports will have a tough time handling this additional quantity of coal that will have to be imported. Over and above that, the Indian Railways is not exactly geared to be able to transport this coal from the ports to different parts of the country where it is required. The added infrastructure that will be required to handle the additional imports cannot be created overnight. Further, it is likely to drive up international price of coal, which has been falling lately. Also, it needs to be decided as to what happens to those coal blocks were coal is actually being produced. Do they get away just by paying a fine?
By following an arbitrary process of allotment of coal mines the various governments of the past (primarily the Congress led UPA) have left a huge mess which threatens the energy security of India. The Supreme Court judgement points out that “the explanation by the Central Government for not adopting the competitive bidding is that coal is a natural resource used as a raw material in several basic industries like power generation, iron and steel and cement.”
It goes on to add that “The end products of these basic industries are, in turn, used as inputs in almost all manufacturing and infrastructure development industries. Therefore, the price of coal occupies a fundamental place in the growth of the economy and any increase in the input price would have a cascading effect. 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.”
The Central Government referred to in the judgement is the Congress led UPA government. The moral of the story here is that when you don’t allow the free market to operate, when things are not transparent, and when politicians decide on rules and framework as they go, the situation usually ends up in a mess.
The least that can be learnt from the Coalgate experience is that whenever the government decides to allocate natural resources from now on, it should do so in a transparent and rule based manner.

The article originally appeared on www.firstpost.com and www.firstbiz.com on August 25,2014 
(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

If Modi is Goebbels, what does that make Digvijay?


Vivek Kaul
Digvijay Singh, currently one of the powerful general secretaries in the Congress party, was born in February 1947. Given this he must have been in his late teens when the Yash Chopra directed multi-starrer Waqt released in 1965.
While I am not sure whether Singh is a movie buff or not, chances are he might have seen the movie. We all do when we are in our teens.
There are two things from Waqt that have survived the test of times. One is the qawali “ae meri zohra jabeen” sung by Manna De, set to tune by Ravi, and written by the great Sahir Ludhianvi.
Another is a dialogue written by Akhtar-Ul-Iman and spoken by Raj Kumar in the movie, which goes like this: “Chinoi Seth…jinke apne ghar sheeshe ke hon wo dusron par pathar nahi feka karte (Chinoi Seth…those who live in glass houses don’t throw stones at others).”
If Digvijay Singh hasn’t seen this movie its time he did. If watching a 206 minute long movie doesn’t fit into his scheme of things, he can at least watch this 18 second YouTube clip, to realise that those who live in glass houses don’t throw stones at others.
Singh has accused Narendra Modi of being well trained by the Rashtriya Swayemsevak Sangh (RSS) in the “Nazi tradition” of false propaganda. He tweeted twice on this to say:
1. “Sangh trains it’s cadre in disinformation campaign. Obviously Modi has been trained well! Sangh has modeled itself in the Nazi tradition.”
2. “Sangh training to its cadre. Jhoot bolo zor se bolo aur baar baar bolo (Tell a lie, tell it loudly and tell it hundred times). Doesn’t it remind you of Hitler’s Goebbels?”
These tweets came after Narendra Modi accused the government of having spent Rs 1880 crore in the treatment of Sonia Gandhi’s mysterious illness. Modi claimed to have got this number from a media report.
Singh has compared Modi to Paul Joseph Goebbels who was a German politician and Adolf Hitler’s Minister of Propaganda in Nazi Germany. There is no denying that Modi might be wrong with his Rs 1880 crore claim but the fact of the matter is that the Congress leaders including Digvijay Singh have been doing the same thing that they have just accused Modi of i.e. false propaganda, over and over again.
Let’s take a look at something that Digvijay Singh said in the context of the coalgate scam sometime back. “The way the CAG is going, it is clear he (i.e. Vinod Rai) has political ambitions like TN Chaturvedi (a former CAG who later joined the BJP). He has been giving notional and fictional figures that have no relevance to facts. How has he computed these figures? He is talking through his hat,” said Singh.
The CAG put the losses due to the government giving away coal blocks for free at Rs 1,86,000 crore. Singh would like us to believe that the figures put out by the CAG were notional and fictional and had no relevance to facts. As I explain here it was Singh and not the CAG who was talking through his hat.
Singh’s esteemed colleague, the finance minister P Chidambaram, also tried to tell the nation that there had been no loss in coalgate. “If coal is not mined, where is the loss? The loss will only occur if coal is sold at a certain price or undervalued,” said Chidambaram.
The union Finance Minister wanted us to believe that since almost all companies which got free coal blocks have not started to mine coal till date, hence there have been no losses. This is like saying that I gave away my house for free, but since the person I gave it away to is not able to sell it, hence I did not face any losses.
Chidambaram was basically trying to confuse us by mixing two issues here. One is the fact that the government gave away the blocks for free. And another is the inability of the companies who got these blocks to start mining coal. Just because these companies haven’t been able to mine coal doesn’t mean that the government of India did not face a loss by giving away the mines for free. (You can read the complete argument here).
Kapil Sibal the union telecom minister wanted us to believe that the government hadn’t faced any losses by giving away licenses to telecom companies on a first come first serve basis rather than auctioning them. The CAG had put these losses on account of this at Rs 1,76,000 crore. What these examples clearly bring out is that Congress leaders like Digvijay Singh are indulging in false propaganda of the worst kind, something they have just accused Narendra Modi of.
Another interesting point is that there can be a clear difference of opinion when it comes to the losses suffered by the government on account of coalgate. The assumptions that CAG worked with put the losses at Rs 1,86,000 crore. As I showed in an earlier piece with some more aggressive assumptions the losses could have even shown to be at Rs Rs 13.5 lakh crore (You can read about it here).
But there can be no such variation when it comes to the amount of money that the government has been spending on the treatment of Sonia Gandhi’s illness (if at all it has). A very simple way to puncture Narendra Modi’s argument is to just tell the nation, how much money has really been spent.
Modi claims that the government has spent around Rs 1880 crore or around $356 million on Sonia Gandhi’s illness.  That’s a lot of money. If that is not the right amount, what is the right amount? All it needs is a simple clarification from the government.
And that hasn’t come. What has come is a comment that accuses Modi being a Nazi. As an earlier piece on this website pointed out that there is an RTI application pending before the UPA government asking for details of her visits, the amounts spent and for what purposes. What Singh’s comment also shows is that the Congress doesn’t know how to tackle Modi in Gujarat. Sonia Gandhi in 2007 had labeled him maut ka saudagar. Singh has now labeled him a Nazi. By trying to tarnish Modi’s image the Congress is only helping Brand Modi become much stronger at least in Gujarat. And that can’t be clearly good for a party which claims to be secular.
The article originally appeared on www.firstpost.com on October 3, 2012. http://www.firstpost.com/politics/if-modi-is-goebbels-what-does-that-make-digvijaya-477800.html
(Vivek Kaul is a writer. He can be reached at [email protected])

Sibal jumped the gun: SC may well see Coalgate as a scam


Vivek Kaul
Gyan Chaturvedi, a famous Hindi writer of this era, makes a very interesting point in the introduction to his 2004 book Marichika . He writes “jungle ke apne niyam hote hain aur wahan kissi tark ka koi sthan nahi hota (a jungle has its own rules and there is no space for any reasonable arguments to be made there).”
Nobody understands this much better than politicians operating in the jungle of politics. They rush to save their own skin and keep justifying what they had said earlier, despite evidence to the contrary. “My position is right because I had said so in the past,” is the logic with which they operate. There is no scope for a “reasonable argument” there.
The Telecom Minister Kapil Sibal’s reaction to the Supreme Court’s “opinions” on the government reference to it asking for broad-sweep clarifications on its policy of allocating natural resources is a very good example of the same. “We welcome the Supreme Court(SC) opinion. SC has confirmed what the government has been saying,” Sibal said yesterday.
This comment came after a five judge bench of the Supreme Court answered the questions it had been asked by the government of India through a Presidential reference on April 12,2012. Among other things the government had asked the Supreme Court to clarify on “whether the only permissible method for disposal of all natural resources across all sectors and in all circumstances is by the conduct of auctions.”
This question had arisen in light of the Supreme Court judgement cancelling the licenses given to 122 telecom companies in 2008, when A Raja was the Telecom Minister. The government had given out these licenses on the basis of “first come first serve” principle rather than auctioning them as they had done in the past and thus causing a huge loss to the exchequer.
In response to the government’s question the Supreme Court clarified “Auctions may be the best way of maximising revenue but revenue maximisation may not always be the best way to subserve public good. Common good is the sole guiding factor under Article 39(b) for distribution of natural resources. It is the touchstone of testing whether any policy subserves the “common good” and, if it does, irrespective of the means adopted, it is clearly in accordance with the principle enshrined in Article 39(b).”
This paragraph in the suggestions made by the Supreme Court perhaps got the politician in Sibal gloating and into the “I had told you so” mould. The government has maintained that auctioning natural resources is not always the best possible way to operate because it tends to drive up prices. For example, if coal is auctioned to the highest bidder, then power prices will go up. Hence, in lieu of the “common good” natural resources cannot always be sold to the highest bidder.
Let’s see how strong this argument holds in case of the coalgate scam. Between 1993 and 2011, the government gave away 195 coal blocks with total geological reserves of 44802.8million tonnes free to private and government companies. An estimate of the total amount of coal present in a block is referred to as geological reserve. Due to various reasons including those of safety, the entire reserve cannot be mined. The portion that can be mined is referred to as extractable reserve.
Of these 115 blocks were given to companies which would use coal that they produced from these captive blocks for the manufacture of cement and iron and steel, conversion of coal to oil and commercial mining. These blocks have geological reserves amounting to 20526.9 million tonnes of coal.
The manufacture of cement and iron and steel or commercial mining operations are “for profit” operations and cannot be termed as “common good”. Hence there was no reason for the government to give away these coal blocks for free. That is a clear interpretation that one can draw out of what the Supreme Court said.
Eighty coal blocks were given to companies for the manufacture of power. Of these 80 coal blocks, 53 blocks were given to companies for captive dispensation of power. These blocks had 10621.4 million tonnes of geological reserves of coal.
What this meant was that companies had to use the coal produced from the blocks they had been given to produce power to meet their internal needs. Hence a company manufacturing steel could use coal produce from its blocks to manufacture power needed to produce steel. The “free” coal blocks would allow them to produce power cheaply and thus bring down their costs and thus make higher profits from what they would have made. Again, the end result is a “for profit” operation and this cannot be categorized as “common good”.
Hence, 168 out of the 195 coal blocks with geological reserves of 31148.3 million tonnes were allocated to companies supposedly in “for profit” operations. The remaining 27 blocks with geological reserves of 13654.5 million tonnes were allocated for production of power. Of these seven blocks had been allocated to ultra mega power projects. The companies which were given these blocks could produce power cheaply because they did not have to pay for the coal block. This can be categorized as a “common good”.
Hence, common good is limited to around 30% of the coal reserves allocated under the government’s policy of giving away coal blocks for free. Even this can be questioned given that all the seven coal blocks (with geological reserves of 2607million tonnes) allocated to the ultra mega power projects are in the private sector. And no private sector company is in business to make a loss.
If Sibal had read the suggestions of the Supreme Court carefully enough he would have realised that Justice Jagdish Singh Khehar, one of the judges on the bench, does make the points I just raised above.  “When natural resources are made available by the state to private persons for commercial exploitation exclusively for their individual gains, the state’s endeavour must be towards maximisation of revenue returns. This alone would ensure, that the fundamental right enshrined in Article 14 of the Constitution of India (assuring equality before the law and equal protection of the laws), and the directive principle contained in Article 39(b) of the Constitution of India (that material resources of the community are so distributed as best to subserve the common good), have been extended to the citizens of the country,”Kehar points out.
Given this, it clearly means that 70% of the coal blocks given away for free should have been auctioned because there is clearly no “common good” involved there.
Judge Kehar also pointed out that “No part of the natural resource can be dissipated as a matter of largesse, charity, donation or endowment, for private exploitation. Each bit of natural resource expended must bring back a reciprocal consideration. The consideration may be in the nature of earning revenue or may be to “best subserve the common good”. It may well be the amalgam of the two. There cannot be a dissipation of material resources free of cost or at a consideration lower than their actual worth. One set of citizens cannot prosper at the cost of another set of citizens, for that would not be fair or reasonable.”
Khehar also clearly points out that even though the Supreme Court was saying that the auction of natural resources wasn’t the right way to proceed always, but that did not mean that there should be no auctions at all. “Government should remain alive to the fact that disposal of some natural resources have to be made only by auction…A rightful choice, would assure maximization of revenue returns. The term “auction” may therefore be read as a means to maximize revenue returns,” the Judge said.
The Judge also makes it clear that in several situations giving away coal blocks for free wouldn’t work. “If the bidding process to determine the lowest tariff (of power) has been held, and the said bidding process has taken place without the knowledge that a coal mining lease would be allotted to the successful bidder, yet the successful bidder is awarded a coal mining lease. Would such a grant be valid?… Grant of a mining lease for coal in this situation would therefore be a windfall, without any nexus to the object sought to be achieved,” he said. Thus a power company which is in the business of selling power at commercial rates could get an undue benefit because it had access to free coal blocks.
Another interesting point that the Judge makes is that the man on the street should know why the decision has been taken in favour of a particular party. What this means in terms of the coalgate scam is that the government owes an explanation to the nation as to why relatives of ministers in the government got coal blocks for free? It also needs to tell us is how did dubious companies with no previous experience in any business land up with coal blocks?
Kapil Sibal clearly jumped the gun while making the comments that he did yesterday. Guess by now he would have found time to read through what the Supreme Court had to say in totality. Given this he would understand that the underlying tone of the suggestions made by the Supreme Court is that the UPA government screwed up majorly while giving away coal blocks for free since they came to power in 2004.
(The article originally appeared on www.firstpost.com on September 28,2012. http://www.firstpost.com/business/sibal-jumped-the-gun-sc-may-well-see-coalgate-as-a-scam-471881.html)
(Vivek Kaul is a writer. He can be reached at [email protected])