07-12-2012, 06:19 PM
Coal Allocations In India
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ABSTRACT
Coal allocation scam or Coalgate[1], as referred by the media, is a political scandal concerning the Indian government's allocation of the nation's coal deposits to public sector entities (PSEs) and private companies. In a draft report issued in March 2012, the Comptroller and Auditor General of India (CAG) office accused the Government of India of allocating coal blocks in an inefficient manner during the period 2004-2009. Over the Summer of 2012, the opposition BJP lodged a complaint resulting in a Central Bureau of Investigation probe into whether the allocation of the coal blocks was in fact influenced by corruption[2]
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.[3] As a result both public sector enterprises (PSEs) and private firms paid less than they might have otherwise. In its draft report in March the CAG estimated that the "windfall gain" to the allocatees was 1,067,303 crore (US$193.18 billion).[4] Later references in Parliament put the figure at 186,000 crore (US$33.67 billion)[5] On August 27th, 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.[6][7][8]
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 (CVC) directed the CBI to investigate the matter. The CBI has filed charges against a dozen Indian firms accusing them of overstating their net worth, failing to disclose prior coal allocations, and hoarding rather than developing coal allocations.[9][10] The CBI officials investigating the case have speculated that bribery may be involved.[11]
History of coal allocations In India
Who can apply for a coal allocation?
Historically, the economy of India could be characterized as broadly socialist, with the government directing large sectors of the economy through a series of five-year plans. In keeping with this centralized approach, between 1972 and 1976, India nationalized its coal mining industry, with the state-owned companies Coal India Limited (CIL) and Singareni Collieries Company (SCCL) being responsible for coal production.
This process culminated in the enactment of the Coal Mines (Nationalisation) Amendment Act, 1976, which terminated coal mining leases with private lease holders. Even as it did so, however, Parliament recognized that the nationalized coal companies were unable to fully meet demand, and provided for exceptions, allowing certain companies to hold coal leases:
• 1976. Captive mines owned by iron and steel companies.
• 1993. Captive mines owned by power generation companies.
• 1996. Captive mines owned by cement companies.[14]
How well has the allocation process worked?
The response to the allocation process between 2004 and 2009 was spectacular, with some 37 billion tons of coal being allocated to public and private firms.[19] By way of comparison, the entire Indian coal industry only produces 0.5 billion tons annually, with CIL being responsible for 80% of this amount.[20] Under the program, then, captive firms have been allocated vast amounts of coal, equating to hundreds of years of reserves, for a nominal fee.
Given the inherent subjectivity in some of the allocation guidelines, as well as the potential conflicts between guidelines (how does one choose between a small capacity, late stage project and a large capacity, early stage project?) 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."[21] In 2005 the Expert Committee on Coal Sector Reforms provided recommendations on improving the allocation process, and in 2010 the Mines and Minerals (Development and Regulation) Act (MMDR Act), 1957 Amendment Bill was enacted, providing for coal blocks to be sold through a system of competitive bidding.[22] [23]
Allegations against RJD Leader Premchand Gupta
UPA partner Rashtriya Janata Dal's leader Premchand Gupta's sons company brand new to the steel business applied for a coal block when Premchand Gupta was the Union minister for corporate affairs and bagged it about a month after his tenure ended along with that of his government. The company in question is IST Steel & Power - an associate company of the IST Group, which is owned and run by Premchand Guptas sons Mayur and Gaurav. IST Steel, along with cement majors Gujarat Ambuja and Lafarge, was allocated the Dahegaon/Makardhokra IV block in Maharashtra. The company, which applied for a block on January 12, 2007, and was awarded it on June 17, 2009, is sitting on reserves of 70.74 million tonnes. The reserves it controls are more than the combined reserves held by much larger companies - Gujarat Ambuja and Lafarge. Gupta, who belongs to the Rashtriya Janata Dal headed by Bihar leader Lalu Prasad Yadav, was the minister of state for corporate affairs in UPA-I when his party was a constituent of the Congress-led coalition with 21 seats in Lok Sabha. However Mr Gupta maintains he had no involvement in IST Steel and denies influencing the coal-block allocation process.