COALGATE SCAM

INTRODUCTION
Coal mining has been around in India for more than 200 years. India boasts of one of the largest
reserves of coal mines in the world at 301.56 billion tonnes of coal. Odisha and Jharkhand
account for 51.65% of the national reserve. With the introduction of steam locomotives the
demand for coal increased exponentially and India under the British raj increased its production
manifold. By 1900, the production figures stood at 6.75 million short tonnes and more than
tripled to 20 million short tonnes by 1920.
After 1947, the government of India settled to produce 33 million short tonnes per year as a part
of the 1st Five Year Plan. Even during the First Five Year Plan, the need for production of coal
was being felt. The National Coal Development Corporation (NCDC) was founded in 1956 as a
Government of India undertaking with most of collieries belonging to the Indian Railways. Coal
Production had certainly evolved, not just in terms of numbers but also in the number of ways it
was being done.
The coal industry was not aware of the processes of mining and maintenance of such a
commodity. Coal mining companies were not aware of the process of stowing which is a way of
packaging the mined coal reserves. Stowing was not a widespread practice due to which large
reserves of coal were left in pillars which resulted into fires following spontaneous combustion.
Coal and Oil both being fossil fuels were in a way substitutes to each other. The 1960s was a
period when oil was cheaper than coal. The world had now learnt how to use oil, and were
exploiting the oil reserves. The deficit in supply led to the price of oil skyrocketing in the 1970s
resulting in hike in coal demand. The central government then decided to bring the coal mines
under government control.
Since production of coal under private ownership accounted for 75% of the total nation
production, the industry was highly disorganised and loopholes were exploited for personal
benefit. The takeover process started in 1971 and the Government of India took over all the
coalmines of the country by 30th January 1973. This led to Coal Mines nationalisation act in
1973 which gave the central government or any entity acting on behalf of the central government
but restricted to Government owned companies and corporations as the sole authority to mine
coal within the country. In 1975, Coal India Limited (CIL) was brought into existence, its sole
purpose being as a holding company to integrate and streamline the structural set up and bring
both coking and non-coking coalmines in one controlling unit.
In July 1992, the Ministry of Coal issued the instructions of constitution of a Screening
Committee to for screening proposals received for captive mining by private power generation
companies. A number of 143 Coal Blocks were identified by Coal India Limited and associates.

The screening committee has representatives from State government, concerned ministers from
Central government and coal companies. Since 1993 this board is responsible for allotment of
coal blocks. The committee allocates the blocks after evaluating the applicant.
The parameters and the guidelines for allocation followed by the committee, while evaluating the
applications, were duly published on the website of the Ministry of Coal before inviting the
applications.

Comprehensive details about the applicant, the group

Performance of the group
Financial strength
Readiness of the end-use plant etc.
Techno-economic feasibility of the end use project
Status of preparedness to set up the end use project
Past track record in execution of projects
Financial and technical capabilities of the applicant companies
Recommendations of the state governments the Administrative Ministry concerned.

In regards to the Coal Allocation Scam, the first charge that CAG made on the ministry of coal
was that it completely bypassed the usage of the Screening Committee and went on to allocate
the coal blocks at its own accord.
A loss of approximately Rs. 1.86 Lakh Crore was reported by the CAG and the scam became the
medias hot topic as massive numbers was involved.

THE SCAM
What is the scam all about?
Coal allocation scam or coal gate scam is a major political scandal concerning the Indian
governments arbitrary and non-transparent allocation of coal to public and private sector
companies.
Post liberalization in 1991, the National Mineral Policy (NMP) was enunciated in 1993 to
welcome the participation of private sector companies in developing the Indian economy. Each
company has to go through the stringent procedures and highly competitive bidding process set
by the screening committee to be eligible to own and mine one or several of the coal block(s).
However, the final decision is in the hands of Coal Minister of India, but coal blocks, in large
numbers were allocated to companies almost free of cost. A small bank guarantee was taken from
the candidates, who were required to pay royalty only when the coal mine would become
operational.

Coal blocks can also be given to private companies for captive purpose. Captive purpose
means, the companies can operate these mines only if the end product is steel, power, cement or
any other, specified by the Indian government. None of these procedures were followed and the
coal blocks were distributed arbitrarily to those who were close to UPA. These blocks possess
1700 crore tonnes of coal worth over INR 50 Lakh Crore.

What does the UPA government say?

According to the UPA, Coal India Limited, with an average growth of 2.3% per year from 2004
to 2012, was incapable of meeting the countrys increasing demand for power. The coal blocks
were hence given away to the private companies at low/negligible rates so that they in turn dont
impose high charges to Indian population and even the lower class of people could afford it. This
led to the rise in share price and financial worth of the companies at a fast rate and also led to
windfall gains.

The governments zero-loss theory

The zero loss theory suggests a situation in which ones gain is equivalent to anothers loss, so
the net change in their wealth is zero.
P. C. Chidambaram, at a press conference in New Delhi, said CAG's concept of presumptive loss
was "flawed" and there was no loss because no mining has taken place in the coal blocks as yet.
"If coal is not mined, if it remains buried in mother earth, where is the loss? The loss can arise
only once the coal is taken out, mined and sold at unacceptable price or value. But if the coal is
not mined, where is the loss" was the defending statement of the then finance minister. For
almost eight years, the action on this was being postponed and the bidding system delayed.
Comptroller Auditor General (CAG)
The role of CAG has been a very vital one in bringing the dirt out. In a report following the
performance audit, CAG accused UPA government of the following two points:

The coal blocks were supposed to be auctioned through a competitive bidding system, but
the government failed to do so.
This has allowed the private and public companies to obtain windfall gains of INR 10.6
Lakh Crore.

This figure was later changed to an absolute loss of INR 1.86 Lakh Crore to the Indian
Government. This figure was based on the following assumptions:

Only those blocks given to private companies were taken into account.
Only open cast mines were taken into account No underground mines.

Because of these assumptions, the figure of INR 1.86 Lakh Crore, although the final one, may
not be exact. CAGs itself claims the figure to be a conservative one.

Whistle blower:
BJP MP Hansraj Gangaram Ahir was the one who exposed the coal block allocation scam. Ahir
had meticulously collected information on the irregularities in coal block allocations. He tried to
contact the Prime Ministers Office for assistance but was instead stonewalled. Ahir then turned
to fellow BJP MP Prakash Javedekar, who petitioned the Central Vigilance Commission (CVC)
for an inquiry. Subsequently, The CVC ordered the CBI to look into the coal allotment procedure
and the ramifications of it, hit the errant entities hard.

SCs verdict
On 25th August, 2014 judgment was delivered in these cases and it was held, inter alia, that the
allotment of coal blocks made by the Screening Committee of the Government of India and also
the allotments made through the Government dispensation route are arbitrary and illegal.
The Supreme Court has de-allocated 214 coal blocks out of the 218 coal blocks allocated since
1993. The 4 coal blocks which are exempt from the verdict are run by the Central
government with no joint venture with the private sector. Two of them are with National Thermal
Power Corporation (NPTC) and Steel Authority of India Limited (SAIL), and the other two have
been allocated for ultra mega power projects by Reliance Power and NPTC under competitive
bidding.
It has asked coal blocks which are already operational will get 6 months to wrap up their
operations. After 6 months, the blocks will be handed over to Coal India. But the power
producers dependent on these coal blocks will not suffer as even after Coal India takes them
over, it will continue to provide coal to the power producers. The Court has also said that coal
from captive mines can be used only to generate power and cannot be used for any competitive
bidding.
The Supreme Court said that it saw no reason to save the blocks as the allocations were arbitrary.
All the companies have also be fined at Rs 295 per mega tonnne for the loss suffered by the
country, and in this case, the Court has accepted CAG's estimation of the loss.

Repercussions:

The Supreme Courts verdict had a strong repercussion on Indian Economy and power and coal
related sector. Metal stocks fell sharply after the Supreme Court verdict. Sensex also fell over
200 points but recovered later. Cancellation of the blocks have hit investors confidence, caused
acute distress in some industries, affect 28,000 MW of power capacity, and caused an estimated
loss of Rs. 4.4 lakh crore in terms of royalty, cess, direct and indirect taxes, besides raising the
cost of coal imports and setting back the process of extraction and effective utilisation of coal by
eight years. Jindal Steel and Power lost 11% immediately after the verdict.
Currently 40 out of the 218 coal blocks that were allocated produce coal. The Supreme Court
has cancelled all these allocations except one mine belonging to SAIL and two mines which feed
coal into Sasan Power, which is an ultra mega power project. Data from the ministry of coal
suggests that these mines are likely to produce around 52.9 million tonnes of coal during this
financial year (April 1, 2014 to March 31, 2015).

So what happens from 1 April, 2015?

As the judgement points out "The Central Government is confident, as submitted by the learned
Attorney General, that the CIL (Coal India Ltd) can fill the void and take things forward." Hence,
Coal India is likely to operate these mines after the cancellation comes into effect.
Following the cancellation of the coal blocks, concerns were raised about further shortage in the
supply of coal, resulting in more power supply disruptions. The 2015 Coal allocation Bill
primarily seeks to allocate the coal mines that were declared illegal by the Supreme Court. It
provides details for the auction process, compensation for the prior allottees, the process for
transfer of mines and details of authorities that would conduct the auction. In December 2014,
the ministry notified the Coal Mines (Special Provisions) Rules, 2014. The Rules provide further
guidelines in relation to the eligibility and compensation for prior allottees.
The bill creates three categories of mines, Schedule I, II and III. Schedule I consists of all the
204 mines that were cancelled by the Supreme Court. Of these mines, Schedule II consists of all
the 42 mines that are under production and Schedule III consists of 32 mines that have a
specified end-use such as power, iron and steel, cement and coal washing.