Coal block allocation scam: about half-truths and falsehoods
In a politically sensitive debate, facts are normally distorted, manipulated, even massaged, to present blatantly wrong inferences. This happens across the globe, as is evident from the current presidential election campaign in the US. The Republicans contend that Barack Obama has further ruined the American economy during his four-year tenure. The Democrats maintain that it is better than what it was. Both the views are essentially correct, and completely wrong.
A recent CNN analysis revealed that Obama’s Democratic team was right when it claimed that 4.5 million domestic jobs were added in the private sector in the past 29 months. But if one juxtaposed it with the 5 million jobs lost in the private sector during Obama’s tenure (past four years), the statement sounded hollow. If one took into account the difference between jobs added and lost in the government sector as well, the net reduction in total jobs in the US in the past four years was 1.1 million.
Similarly, the US unemployment rate in July 2012 was higher than what it was in early 2009, when Obama took over as the president. So, the Republicans had a genuine reason to slam the Democrats. But then the figure was lower than the peak it reached in 2010; unemployment came down in the last two years of Obama’s presidency. Given such diverse and seemingly contradictory facts, it becomes difficult to judge who is telling the truth – Republicans or Democrats.
The same is the case with CoalGate. Each side, be it CAG, ruling regime, opposition parties, business community or media, has presented select information to prove a certain conclusion. No one has striven to uncover the truth; they were guided by their biases. As the confrontations – CAG versus government, Congress versus BJP and media versus private allottees of coal blocks – reach their decibel peaks, it is time to peel off the layers to unravel the core truth.
Did the country lose Rs 1,86,000 crore due to allocation of coal bocks?
In its 2012 report, CAG said this was the loss to the exchequer as the captive coal blocks were allotted through a screening committee, and not auctioned to the highest bidder. The figure was calculated on the basis of the difference between the higher market price of coal, sold by state-owned Coal India Ltd (CIL), and lower mining costs of the firms, which got the blocks. CAG took into account the 58 blocks allocated to private firms between 2006 and 2009.
The government maintained that since most of these captive blocks had not commenced production, there could be no question of a loss. CAG said only 15 of the 58 blocks had started mining operations. As long as the coal remained under earth, and was not used by the private firms, the auditor’s calculations were irrelevant. There has to be a cause and effect; a loss can be computed only if there is a sale of a product, or it has been consumed by the user’s factory.
Clearly, CAG’s estimates are inflated. It has used a simplistic formula, which does not take into account the investments (incurred or to be incurred) by the private firms – only a part of it reflects in costs as depreciation and interest. The equation does not include the opportunity cost of the entrepreneur’s capital, and his/her risk-taking abilities. The fact is that CIL’s prices can be uncompetitive, since it is a monopoly player and the only one that can sell in the open market.
The government’s argument is wrong too. Whether it is mined or consumed, the coal in the 58 blocks remains with the private allottees, and they can use it anytime during the tenure of the lease period (20-25 years). As the BJP put it, it is akin to the government’s transfer of huge sums to private parties’ savings accounts, which the recipients can use whenever they please to do so. Just because they have not done so yet does not imply that the money is back with the government.
Conclusion: CAG’s figure is exaggerated, but the government’s is understated. There was a loss but it was much lower than `1,86,000 crore.
Did the government deliberately delay the policy to auction coal blocks?
The BJP, CAG and sections of media believe that this was indeed the case. The auditor said that while the process to introduce auctions began in June 2004, the bill to amend the Mining Act was passed by parliament in 2010. The guidelines for the auction were finalised in 2012. Between 2004 and 2008, when the bill was introduced in parliament, it was opposed by the prime minister’s office (PMO), the minister of state (MoS) for coal, and the prospective users, who got the captive blocks.
In its defence, the government contends that in a coalition regime it is not unusual for the policymaking process to take four to six years. The same has happened to the move to allow FDI in multi-brand retail, which has still not become law even after several years. Moreover, the initiative to allot coal blocks through auctions was opposed by the chief ministers of the BJP-ruled states.
Yet again, both these views are partially correct. In 2005 and 2006, there was back and forth between the coal ministry and PMO on several contentious issues. One, there was an apprehension that unless auctions became the norm from prospective (future) effect, existing applicants for coal blocks might legally contest the policy change. Two, there was active lobbying by power utilities to stall auction, which could result in an increase in the cost of coal and power tariffs.
Three, the centre wished to accommodate the views of the coal-rich states, which were mostly ruled by the BJP and which feared that their powers in the allocation of coal blocks would be restricted if auctions became the norm. In April 2006, prime minister Manmohan Singh, who held the coal portfolio, said that they “should refrain from making suggestions which had implications for federal polity”.
However, in 2004 and 2005, auctions were opposed by the PMO and MoS, Coal. Initially, the PMO was against auctions. MoS, Coal, felt a change in policy would lead to huge delays; in 2004, a 2000 bill to allow “competitive bidding as a selection process for allocation of blocks for commercial purposes” was pending in the Rajya Sabha due to “stiff opposition from trade unions and others”.
In November 2004, the PMO thought that since the change was to be made prospectively, “there was no urgency in the matter. Accordingly, there is no need to bring in the required amendment… through an ordinance. It would be appropriate to (do it)… through a bill to be moved in the coming parliament session….” But the bill was introduced almost four years later.
Conclusion: So, while there were genuine concerns within the government, the introduction of the policy was delayed for other reasons, and an attempt to push it through an ordinance was rejected.
Was the allocation process though the screening committee unfair and opaque?
The media and BJP are convinced that coal blocks were allotted on the basis of patronage to private firms that had links with ministers, chief ministers and other MPs and MLAs. For example, take the case of tourism minister Subodh Kant Sahai, who wrote a letter to Manmohan Singh to lobby for allocations to SKS Ispat & Power, where his brother was a director. The letter, dated February 5, 2008, was forwarded by the PMO the next day to the screening committee, which recommended SKS’s name.
In a discussion on a TV news channel, the Congress spokesperson vociferously and confidently defended Sahai. He based his arguments on a Delhi high court judgment of May 2010, which went through a petition filed by Prakash Industries against the government, SKS and Sahai, among others. The petitioner had alleged that the government allocated higher reserves of coal to SKS from a coal block, held jointly by Prakash Industries and SKS for use of the fuel in their respective proposed power plants. This, read the charges, was because of SKS’s links with Sahai and the latter’s February 2008 letter to the PM.
The order stated that Sahai’s letter, produced as evidence by Prakash Industries, “has nothing to do with the allocation of coal blocks for a power plant (italics ours).” It added that Prakash Industries had “set itself on a hopeless task of trying to join completely unconnected events to bring about a story of malafides.” It concluded that the petitioner had “needlessly dragged” Sahai and his brother “into this litigation knowing fully well that it would be unable to substantiate its case against them.”
Not many realised that both the allegation against Sahai and the Congress’ attempts to save him were only partially correct. Sahai’s letter (February 2008) was not about allocation of coal blocks for SKS’ power plant, but the latter’s two steel plants in Chhattisgarh and Jharkhand. He asked for the PM’s “personal intervention in this (steel plants) matter”. In November 2011, SKS was allotted one coal block for its sponge iron (or steel) unit in Chhattisgarh, apart from the one for its power plant.
Seen from this perspective, the high court order that gave a clean chit to Sahai and which was aggressively quoted by the Congress, was only on the limited issue that Sahai did not lobby on behalf of SKS for coal block allocation for its power plant, which is true. But the conclusion did not extend to the pressure exerted by Sahai to get two coal blocks for SKS’ steel (or sponge iron) units. SKS did get an additional coal block for its sponge iron unit in Chhattisgarh.
Conclusion: Sahai was in the wrong and may have influenced coal block allocation for SKS’s sponge iron unit. The high court was right that he did not do so in the case of allotment for SKS’s power plant.
Should the allocations of all the 58 coal blocks be cancelled?
The BJP has raised the ante and made two crucial demands: PM should resign and all the coal blocks allotted to private parties under the screening committee regime between 2006 and 2009 should be cancelled. Since the government deliberately delayed the introduction of auction, and the screening committee’s procedure was non-transparent and manipulated, this is the ideal solution. In addition, the supreme court cancelled all the 122 mobile licences given in January 2008 for similar reasons.
As far as the government is concerned, the unilateral cancellation is illogical. It feels that the licences of only those firms, which have not commenced mining even after years of allotment, should be revoked. The coal ministry has already sent show-cause notices to such companies. Coal minister Sriprakash Jaiswal believes that en masse cancellation can lead to court cases against the government.
Both the viewpoints are muddled to an extent. Obviously, there were some allocations that were fair and made to deserving applicants. But then to relate cancellations with mining operations implies that private firms, which may have been allocated blocks in an unfair manner, but have started mining activities, will be allowed to retain them.
Conclusion: Action should be taken against both miners, who were favoured for political or other reasons in the allocation process, and those who have failed to start operations as per their commitments.