Indian coal allocation scam


The coal allocation scam, dubbed in the media as Coalgate, is a major political scandal concerning the Indian government's allocation of the nation's coal deposits to public sector enterprise and private companies. In a draft report issued in March 2012, the Comptroller and Auditor General of India office accused the Government of India of allocating coal blocks in an inefficient manner during the period 2004–2009. Over the summer of 2012, resulting in a Central Bureau of Investigation probe into whether the allocation of the coal blocks was in fact influenced by corruption.
The essence of the CAG's argument is that the Government had the authority to allocate coal blocks by a process of competitive bidding, but chose not to. As a result, both public sector enterprises and private firms paid less than they might have otherwise. In its draft report in March the CAG estimated the "windfall gain" to the allocatees was. The CAG Final Report tabled in Parliament put the figure at On 27 August 2012 Indian prime minister Manmohan Singh read a statement in Parliament rebutting the CAG's report both in its reading of the law and the alleged cost of the government's policies.
While the initial CAG report suggested that coal blocks could have been allocated more efficiently, resulting in more revenue to the government, at no point did it suggest that corruption was involved in the allocation of coal. Over the course of 2012, however, the question of corruption has come to dominate the discussion. In response to a complaint by the BJP, the Central Vigilance Commission directed the CBI to investigate the matters in a First Information Report, the first step in a criminal investigation. These FIRs accuse them of overstating their net worth, failing to disclose prior coal allocations, and hoarding rather than developing coal allocations. The CBI officials investigating the case have speculated that bribery may be involved.
The issue has received massive media reaction and public outrage. During the monsoon session of the Parliament, the BJP's leader Hansraj Ahir protested the Government's handling of the issue demanding the resignation of the prime minister and refused to have a debate in the Parliament. The deadlock resulted in Parliament functioning only seven of the twenty days of the session. The Parliamentary Standing Committee report on Coal and Steel states that all coal blocks distributed between 1993 and 2008 were done in an unauthorized manner and allotment of all mines where production is yet to start should be cancelled. In 2015, Coal auction helped state government earn 80,000 Crore after sales of 11 coal blocks.

1992–2010. Background to Coalgate: history of coal allocation in India

The coal allocation process

"In July 1992 Ministry of Coal, issued the instructions for constitution of a Screening Committee for screening proposals received for captive mining by private power generation companies." The Committee was composed of government officials from the Ministry of Coal, the Ministry of Railways, and the relevant state government. "A number of coal blocks, which were not in the production plan of CIL and … SSCL, were identified in consultation with CIL/SSCL and a list of 143 coal blocks were prepared and placed on the website of the MoC for information of public at large."

Findings by High Court of Orissa (2011)

Coal allocation guidelines
The guidelines for the Screening Committee suggest that preference be given to the power and steel sectors. They further suggest that in the case of competing applicants for a captive block, a further 10 guidelines may be taken into consideration:
  • status level of progress and state of preparedness of the projects;
  • net worth of the applicant company ;
  • production capacity as proposed in the application;
  • maximum recoverable reserve as proposed in the application;
  • date of commissioning of captive mine as proposed in the application;
  • date of completion of detailed exploration as proposed in the application;
  • technical experience ;
  • recommendation of the administrative ministry concerned;
  • recommendation of the state government concerned ;
  • track record and financial strength of the company.
Results of the coal allocation program
The response submitted in response to the 2011 PIL at Orissa on the allocation process between 2003 and 2009 was spectacular, with some 44 billion metric tons of coal being allocated to public and private firms. By way of comparison, the entire world only produces 7.8 billion tons annually, with India being responsible for 585 million tons of this amount. Under the program, then, captive firms were allocated vast amounts of coal, equating to hundreds of years of supply, for a nominal fee.
Out of the above 216 blocks, 24 blocks were de-allocated for non-performance of production by the allocates, and two de-allocated blocks were subsequently reallocated to others. Hence, 194 coal blocks, with aggregates geological reserves of 44.44 billion metric tons, stood allocated as at 31 March 2011.
Source: Draft CAG Report, Table 5.1.
Given the inherent subjectivity in some of the allocation guidelines, as well as the potential conflicts between guidelines it is unsurprising that in reviewing the allocation process from 1993 to 2005 the CAG says that "there was no clearly spelt out criteria for the allocation of coal mines." In 2005 the Expert Committee on Coal Sector Reforms provided recommendations on improving the allocation process, and in 2010 the Mines and Minerals Act, 1957 Amendment Bill was enacted, providing for coal blocks to be sold through a system of competitive bidding.
The foregoing supports the following conclusions:
  • The allocation process prior to 2010 allowed some firms to obtain valuable coal blocks at a nominal expense
  • The eligible firms took up this option and obtained control of vast amounts of coal in the period 2005–09
  • The criteria employed for awarding coal allocations were opaque and in some respects subjective.

    March 2012. Draft CAG Report on Coalgate

;Overview
The CAG report, leaked to the press in March as a draft and tabled in Parliament in August, is a performance audit focusing on the allocation of coal blocks and the performance of Coal India in the 2005–09 period. The Draft Report, stretching to over 100 pages—far more detailed and containing more explosive allegations than the toned-down Final Report of some 50 pages—was the document that sparked the Coalgate furor. The Draft Report covers the following topics:
  1. Overview
  2. Audit Framework
  3. Institutional Framework
  4. Gaps in Supply and Demand
  5. Coal Blocks-Allocation and Production Performance
  6. Production Performance of CIL
  7. Conclusion and Recommendations
  8. Annexures
As far as Coalgate is concerned, the key passages of the Draft Report are in Chapter 5, where the CAG charges that:
  • In 2005 the Government had the legal authority to allocate coal blocks by auction rather than the Screening Committee, but chose not to do so.
  • As a result of its failure to auction the coal blocks, public and private companies obtained "windfall gains" of, with private companies obtaining and government companies obtaining .
The most important assertion of the CAG Draft Report is that the Government had the legal authority to auction the coal, but chose not to do so. Any losses as a result of coal allocations, then, between 2005 and 2009 are seen by the CAG as being the responsibility of the Government. The answer to this question turns on whether the Government could institute competitive bidding by an administrative decision under the current statute or whether it needed to amend the statute to do so.
The CAG devotes ten pages of its report to reviewing the legal basis for an auction, and comes to the following conclusion:
In sum there were a series of correspondences with the Ministry for Law and Justice for drawing conclusion on the legal feasibility of the proposed amendments to the CMN Act/MMDR Act or through Administrative order to introduce auctioning/competitive bidding process for allocation of coal blocks for captive mining. In fact, there was no legal impediment to introduction of transparent and objective process of competitive bidding for allocation of coal blocks for captive mining as per the legal opinion of July 2006 of the Ministry of Law and Justices and this could have been done through an Administrative decision. However, the Ministry of Coal went ahead for allocation of coal blocks through Screening Committee and advertised in September 2006 for allocation of 38 coal blocks and continued with this process until 2009.

Other parts of the report, however, suggest that while an administrative decision might be sufficient legal basis for instituting competitive bidding, the "legal footing" of competitive bidding would be improved if the statute were amended to specifically provide for it. i.e. there were some questions around the legality of using an administrative decision as the ground for an auction process under the current statute. Quoting the Law Secretary in August 2006:
there is no express statutory provision providing for the manner of allocating coal blocks, it is done through a mechanism of Inter-Ministerial Group called the Screening Committee... The Screening Committee had been constituted by means of administrative guidelines. Since, under the current dispensation, the allocation of coal blocks is purely administrative in nature, it was felt that the process of auction through competitive bidding can also be done through such administrative arrangements. In fact, this is the basis of our earlier legal advice. This according to the administrative Ministry has been questioned from time to time for legal sanction. If provision is made for competitive bidding in the Act itself or by virtue of rules framed under the Act the bidding process would definitely placed on a higher level of legal footing.

So while the CAG certainly makes the case that the Government had legal grounds on which to introduce competitive bidding into the coal allocation process, saying that there was "no legal impediment" to doing so perhaps overstates their case.