THE INDIAN LAW INSTITUTE

LL.M (Two Year Course) Wednesday Seminar V (19.09.2012) (10.00am 12.15pm)

Performance Audit of Allocation of Coal Blocks and Augmentation of Coal Production1 Moderator: Presenter: Rapporteur: Sushant Rochlani Seema Saini Isha Wadhwa

Discussants: Neenu Suresh, Sundeep Kashyap, Sukanya Singha I. Background COAL IS the most valuable natural resource for iron, steel, power industries etc. In the Coal Nationalization Act, 1973 (hereinafter the Act), public sector company Coal India Limited (CIL) was accorded sole rights to extract coal.2 In 1976 the Act was amended to allow captive mining by private companies engaged in production of iron and steel and sub-lease for coalmining to private parties in isolated small pockets not amenable to economic development and not requiring rail transport.3 CIL has been failing to supply coal in the required quantities to endusers (particularly in the power, steel, aluminum and cement sectors). Hence, to enlarge production of coal, UPA-I government decided to go for allocation of some coal blocks to a few major end-users in the public and private sectors for captive use, starting from 2004.4 The process of allocation of coal blocks was done by a screening committee,5 largely comprising of government officials, on the basis of recommendations by various ministries and state governments. In 2005, an expert committee6 on roadmap for coal sector reforms recommended that the procedure and processes of allocation needed improvement for effective and transparent allotment. Till 2011, Ministry of Coal allotted 194 Coal Blocks for captive mining of which 142 were explored blocks and 52 were either regionally explored or unexplored blocks.7 II. Overview of the Report In the said report, a loss of approximately Rupees 1.86 lakh crores to the exchequer has been estimated during the period 2004-2009 in allocating coal deposits to private and state-run entities in an irregular and arbitrary manner instead of publicly auctioning them off to the highest bidder.8 There were no specific criteria for allocation of coal blocks till 1993. From 1993
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CAG Report, 2012 available at: http://saiindia.gov.in/english/home/Our_Products/Audit_Report/Government_Wise/union_audit/recent_reports/unio n_performance/2012_2013/Commercial/Report_No_7/Report_No_7.html (Visited on September 11, 2012). 2 Alok Ray, Core Issues in the Coal Scam, The Hindu, August 27, 2012, available at: http://www.thehindubusinessline.com/opinion/article3828276.ece (Visited on September 6, 2012). 3 S. 3(3)(a) of Coal Nationalization (Amendment) Act, 1976. 4 Supra note 2. 5 Established on 14th July, 1992 by Ministry of Coal under the chairmanship of Secretary (Coal to allocate coal blocks for development, subject to the provision of statutes governing coal mines. 6 Supra note 1 at 49. 7 Supra note 2. 8 Supra note 1 at Chapter 4.

onwards, on the recommendations of inter-ministerial screening committee under the chairmanship of Secretary (Coal), allocation of coal blocks is done by Ministry of Coal (MOC) or through direct allocation.9 The screening committee recommended the allocation of coal block to a particular allottee(s) out of all the applicants by way of minutes of the meeting of the screening committee. However the minutes of screening committee did not indicate how each one of the applicant for a particular block was evaluated thereby indicating lack of transparency.10 On June 28, 2004 the concept of allocation of captive coal blocks through competitive bidding was first made public. In the comprehensive note on competitive bidding the Secretary (Coal) has mentioned that there is a substantial difference between the price of coal supplied by CIL and produced through captive mining resulting in a windfall gain to person who is allotted the block. It further indicated that the bidding system will only tap part of the windfall profit for public purpose.11 III. Issues 1. Are there flaws in the method adopted by CAG in estimating the loss? 2. Whether the policy and method of allocation of coal blocks adopted by government was arbitrary? Do you think competitive bidding is a better method for allocation? 3. Is CAG exceeding its mandate under the CAGs (Duties, Powers and Conditions of Service) Act, 1971 by giving suggestion into policy matters?

Suggested Readings 1. Coal Nationalisation Act, 1973 2. CAGs (Duties, Powers and Conditions of Service) Act, 1971 3. G. Mohan Gopal, Accountability of CAG, The Indian Express, September 10, 2012, available at: http://www.indianexpress.com/news/the-accountability-of-cag/1000209/0 (Visited on September 11, 2012). 4. Ashish Khetan, Coal Spill, Tehelka, August 11, 2012, available at: http://www.tehelka.com/story_main53.asp?filename=Ne110812Coverstory2.asp (Visited on September 11, 2012). 5. Era Sheziyan, Dont Undermine the Auditor, The Hindu, September 4, 2012, available at: http://www.thehindu.com/opinion/lead/article3855352.ece (Visited on September 12, 2012). 6. PMs statement in Parliament on the Performance Audit Report on Allocation of Coal Blocks and Augmentation of Coal Production, available at: http://pmindia.nic.in/speechdetails.php?nodeid=1208#content (Visited on September 12, 2012). 7. Surjit S. Bhalla, CAG: Indias Adjustment Bureau, The Indian Express, September 12, 2012 available at: http://www.indianexpress.com/news/cag-indias-adjustmentbureau/1001180/ (Visited on September 12, 2012).

ibid. ibid. 11 ibid.

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