Dirty pic­ture

Fate of 218 coal blocks in limbo; Cen­tre seeks to can­cel mines yet to be de­vel­oped

Down to Earth - - COVER STORY -

ON SEPTEM­BER 9, the Supreme Court re­served its judge­ment on the fate of the 218 coal blocks it had de­clared il­le­gal a fort­night ago. On Au­gust 25, the court pulled up the Cen­tre and de­clared all al­lo­ca­tions be­tween 1993 and 2010 il­le­gal. The “common good and pub­lic in­ter­est have suf­fered heav­ily” be­cause of ar­bi­trary al­lo­ca­tion of th­ese coal blocks to pri­vate and gov­ern­ment com­pa­nies, said Chief Jus­tice R M Lodha.The apex court was hear­ing a slew of pub­lic in­ter­est pe­ti­tions that con­tested coal block al­lo­ca­tions based on the 2012 re­port of the Comptroller and Au­di­tor Gen­eral (cag) of In­dia, which sug­gests that il­le­gal al­lo­ca­tions of coal blocks to min­ing com­pa­nies have caused losses to the tune of ` 1.86 lakh crore to the ex­che­quer.The court had also held the gov­ern­ment re­spon­si­ble for grant­ing largesse to pri­vate com­pa­nies.As many as 106,or about 50 per cent of the coal blocks, have been leased out to pri­vate com­pa­nies. The rul­ing on Au­gust 25 had landed the rul­ing Bharatiya Janata Party (bjp) in a sticky sit­u­a­tion. Just a few months ago the bjp had cam­paigned against the pre­vi­ous United Pro­gres­sive Al­liance (upa) gov­ern­ment wield­ing the cag re­port.But 39 of the 218 coal block al­lo­ca­tions de­clared il­le­gal, were al­lo­cated dur­ing the regime of the bjp-led Na­tional Demo­cratic Al­liance (nda) be­tween 1998 and 2004 (see ‘Po­lit­i­cal anatomy of a mega scam’ on p28).

On Septem­ber 9, Union Coal Sec­re­tary Akhouri San­jay Sa­hay told the court that the gov­ern­ment is ready to be­gin on a “clean slate” with speedy and “trans­par­ent” auc­tion­ing of the coal blocks be­cause the pri­or­ity is to deal with the “loom­ing power cri­sis” in the coun­try.The Min­istry of Coal stated that it did not want to form any com­mit­tee to look into al­lo­ca­tions and favoured can­cel­la­tion of all the coal blocks, ex­cept 46.

At­tor­ney Gen­eral of In­dia Mukul Ro­hatgi had sought ex­emp­tion for th­ese 46 coal blocks—19 were al­lo­cated dur­ing the nda regime—from pos­si­ble re­vo­ca­tion of li­cences on Septem­ber 1, say­ing 40 are un­der pro­duc­tion and min­ing is about to be­gin in the rest. Th­ese coal blocks are with big-ticket pri­vate power and steel com­pa­nies and are es­ti­mated to pro­duce 53 mil­lion tonnes of coal this year. This is 10 per cent of the to­tal pro­jected out­put from all the 105 coal blocks with pri­vate com­pa­nies and is suf­fi­cient to gen­er­ate 26,000 MW of elec­tric­ity and pro­duce 12 mil­lion tonnes of steel.

Rep­re­sent­ing In­dian Power Pro­duc­ers’As­so­ci­a­tion, se­nior lawyer Har­ish Salve told the court that in­di­vid­ual cases must be con­sid­ered by a three-mem­ber panel com­pris­ing a re­tired Supreme Court judge and an au­di­tor. Ro­htagi op­posed the idea, say­ing it will de­lay coal block al­lo­ca­tion. If the Supreme Court can­cels all the coal blocks, he said, the gov­ern­ment min­ing company Coal In­dia Ltd should be al­lowed to take over ac­tive mines, or com­pa­nies be al­lowed to con­tinue pro­duc­tion un­til the blocks are re-auc­tioned to en­sure sup­ply to power plants.

Prashant Bhushan, a Supreme Court lawyer rep­re­sent­ing non-profit Common Cause, a pe­ti­tioner in the coal al­lo­ca­tion scam case, says, “For all the noise made by the gov­ern­ment, pro­duc­tion of coal from the post-1993 al­lo­ca­tions is only 7 per cent of the to­tal coal de­mand in the econ­omy, which is about 739 mil­lion tonnes.”

While declar­ing the coal blocks il­le­gal, the court based its judge­ment on the pres­i­den­tial ref­er­ence re­lated to the al­lo­ca­tion scam of another nat­u­ral re­source— 2G spec­trum. In 2012, it can­celled all 122 spec­trum li­cences on the ground of ar­bi­trari­ness, say­ing alien­ation or al­lo­ca­tion of nat­u­ral re­sources should rely on prin­ci­ples of equal­ity as en­shrined un­der Ar­ti­cle 14 of the

Con­sti­tu­tion, else such ex­ec­u­tive de­ci­sions are ar­bi­trary or capri­cious (see ‘Be­hind the blocks’).

Sanc­tioned, il­le­gally

More than 65 per cent of the coun­try’s to­tal elec­tric­ity re­quire­ment is met from coal, a non-re­new­able re­serve. In­dus­tries like iron, steel and ce­ment also de­pend on coal as fuel.To en­sure eq­ui­table dis­tri­bu­tion of this vi­tal yet limited re­source, the gov­ern­ment in the 1970s na­tion­alised coal re­serves, ex­cept a few blocks be­ing mined by iron and steel com­pa­nies. It also set up the Coal In­dia Ltd (cil) as the sole au­thor­ity to de­velop the re­serves and sell the min­eral to com­pa­nies, both pub­lic and pri­vate. In the 1990s, fol­low­ing eco­nomic lib­er­al­i­sa­tion, there was a surge in the de­mand for coal.So in 1993,the Cen­tre amended the Coal Mines Na­tion­al­i­sa­tion Act, 1976, and al­lowed pri­vate play­ers to de­velop coal blocks. This is when ir­reg­u­lar­i­ties started creep­ing in.

The court has iden­ti­fied two ma­jor ir­reg­u­lar­i­ties in the way coal blocks were al­lo­cated.

In 1993, the gov­ern­ment al­lowed the Screen­ing Com­mit­tee, an in­ter-min­is­te­rial body, to award coal blocks to pri­vate play­ers.But in the ab­sence of clearly de­fined eval­u­a­tion cri­te­ria, the com­mit­tee fol­lowed an “ad hoc and ca­sual” pol­icy that was nei­ther con­sis­tent nor trans­par­ent, the court said. The ex­er­cise of al­lo­ca­tion de­nied a level play­ing field, healthy com­pe­ti­tion and eq­ui­table treat­ment. This whim­si­cal pro­ce­dure of al­lo­ca­tion had re­sulted in “un­fair dis­tri­bu­tion of na­tional wealth” to a few pri­vate com­pa­nies, read the judge­ment (see ‘How Screen­ing Com­mit­tee al­lo­cated coal blocks’).

The apex court has also ques­tioned the au­thor­ity of the Cen­tre in al­lo­cat­ing coal blocks.

The gov­ern­ments of Odisha and Ma­ha­rash­tra ,in their sub­mis­sions to the court, have ar­gued that they have “vir­tu­ally non-ex­is­tent” role as the Screen­ing Com­mit­tee al­lo­cates coal blocks with­out tak­ing their rec­om­men­da­tions into con­sid­er­a­tion. For in­stance, the com­mit­tee awarded Kosar Donger­gaon coal block in Ma­ha­rash­tra to Chaman Metallics Ltd even though the state gov­ern­ment had not rec­om­mended it. This con­tra­venes pro­vi­sions of both the Mines and Min­er­als De­vel­op­ment and Reg­u­la­tion (mmdr) Act, 1957,and the Coal Mines Na­tion­al­i­sa­tion Act, which say that the Cen­tre has the power only to reg­u­late and de­velop mines and that the leas­ing process largely stays with the state gov­ern­ment. “The al­lo­ca­tion let­ter by the Cen­tral gov­ern­ment leaves prac­ti­cally noth­ing for the state gov­ern­ment to de­cide, ex­cept to carry out the for­mal­ity of pro­cess­ing the ap­pli­ca­tion and for ex­e­cu­tion of the lease deed with the ben­e­fi­ciary se­lected by the Cen­tre,” said the court.

The other ir­reg­u­lar­ity crept in 2001 when the coal min­istry in­tro­duced New State Coal Min­ing Pol­icy. The pol­icy al­lows state gov­ern­ment cor­po­ra­tions to mine any­where in the coun­try at a com­mer­cial scale to meet the de­mand of small in­dus­tries that can­not be catered to by cil. The apex court has said the pol­icy has “no le­gal sanc­tion”, how­ever laud­able the ob­jec­tive may be, be­cause it vi­o­lates the Coal Mines Na­tion­al­i­sa­tion Act that pro­hibits com­mer­cial min­ing by state cor­po­ra­tions and re­stricts trans­porta­tion of coal by the rail­ways, en­sur­ing that the mined coal is used by in­dus­tries in iso­lated pock­ets.

Sit­ting idle on black gold

Com­pa­nies once al­lo­cated a coal block are sup­posed to de­velop it within the stip­u­lated time pe­riod of 42 weeks (for open-caste min­ing) and 54 weeks for un­der­ground min­ing. But so far, only 46 have been able to de­velop the mines and another 80 coal blocks have been deal­lo­cated as they could not start pro­duc­tion within the stip­u­lated time frame. Some of th­ese blocks were al­lo­cated more than 14 years ago. For­mer power sec­re­tary EAS Sharma al­leges that there was an or­ches­trated move to ben­e­fit some in­flu­en­tial pri--

vate com­pa­nies so that they can ex­ploit land and coal re­sources with the help of pub­lic money raised by pub­lic sec­tor banks. Almost all pub­lic sec­tor banks have given big loans to power com­pa­nies that have bagged coal blocks (see ‘Banks un­der bur­den’ on p24). This is the rea­son stocks of sev­eral banks tanked shortly after the court termed the coal blocks il­le­gal. Sharma, in a let­ter to the Re­serve Bank of In­dia early this year, says, “There is an im­pend­ing fi­nan­cial cri­sis in psu banks which granted loans to de­vel­op­ers of du­bi­ous power projects and ques­tion­able cap­tive coal blocks.”

Ac­cord­ing to an es­ti­mate by Karvy Stock Broking, wealth man­age­ment firm in Gur­gaon, loans make up a ma­jor chunk of the amount power de­vel­op­ers have in­vested in ex­plor­ing, min­ing and set­ting up projects. Since 2006, In­dian banks have lent ` 2.6 lakh crore to iron and steel com­pa­nies and ` 5 lakh crore to power com­pa­nies. While not all of th­ese loans will be at risk, a back-of-the-en­ve­lope cal­cu­la­tion shows that ex­po­sure to the com­pa­nies with cap­tive coal blocks could be be­tween ` 2.5 lakh crore and ` 3.5 lakh crore. “If th­ese projects fail to take off, banks will have to ei­ther write off or clas­sify them as non-per­form­ing as­sets. Even if the court asks the gov­ern­ment to re­al­lo­cate th­ese coal blocks, it would mean sub­stan­tial de­lays and would re­sult in slip­pages and re­struc­tur­ing of loans,” says an an­a­lyst with Karvy Stock Broking.

Some projects are al­ready in a fix. A con­sor­tium of banks com­pris­ing Axis Bank, Pun­jab Na­tional Bank and uco Bank are try­ing to find buy­ers for debt-rid­den Cor­po­rate Power Ltd (cpl) of Nag­pur-based Ab­hi­jeet Group, which was al­lot­ted five coal blocks but is yet to start pro­duc­tion from any of the blocks.In Au­gust, the chair­per­son and man­ag­ing di­rec­tor of Syn­di­cate Bank,

Sud­hir Kumar Jain, was ar­rested for ac­cept­ing bribe from Ch­hat­tis­garh-based Bhushan Steel, im­pli­cated in coal al­lo­ca­tion scam.The company wanted a loan of ` 100 crore from the bank.The cbi, which has is­sued ar­rest war­rant against Bhshan Steel’s man­ag­ing di­rec­tor Neeraj Sing­hal for brib­ing Jain, says the company has taken loans of ` 40,000 crore from 51 banks.The coal min­istry has also is­sued a show­cause no­tice to Bhushan Steel for not be­ing able to de­velop four coal blocks al­lot­ted to it be­tween 2003 and 2008.Bhushan is yet to file a re­sponse.

Com­pa­nies of­ten cite green clear­ances as a rea­son they have not been able to de­velop mines. An anal­y­sis by Down To Earth shows some com­pa­nies are yet to ap­ply for clear­ances, while in sev­eral other cases, coal blocks are lo­cated in ar­eas with dense for­est cover where com­mu­nity rights are yet to be set­tled. Con­sider this.In 2006,power company Es­sar and alu­minium pro­ducer Hin­dalco were al­lowed to de­velop Ma­han coal block in Sin­grauli.The com­mu­ni­ties chal­lenged the clear­ances granted to the com­pa­nies, say­ing that their rights over Ma­han have not been recog­nised.

Hopes of cheap power dashed

Though many coal blocks could not be de­vel­oped within the stip­u­lated time pe­riod, the coal min­istry kept al­lo­cat­ing re­serves, mostly to power firms. Be­tween 1993 and 2010, as many as 83 coal blocks were leased out to power com­pa­nies. This ex­cludes coal blocks al­lo­cated for ul­tra mega power projects (umpps) that have been ex­empted from the case by the Supreme Court.In 2006,the gov­ern­ment dere­served another 81 coal blocks with cil and awarded them to pri­vate firms, in­clud­ing power and other in­fra­struc­ture com­pa­nies. This was to bridge the gap be­tween de­mand and do­mes­tic sup­ply of coal and to sta­bilise elec­tric­ity price, says the coal min­istry. But its ob­jec­tive is nowhere closer to be­ing achieved.

In 1999, the nda gov­ern­ment had de­cided to al­low the sale of coal from cap­tive mines say­ing that sur­plus coal was hazardous to keep in plant. It in­ti­mated its decision through a let­ter to assocham, Sponge Iron As­so­ci­a­tion, ficci and cii. This gave el­bow room to pri­vate play­ers, who in­stead of pro­duc­ing elec­tric­ity for the grid, started sell­ing coal in the open mar­ket.

“Be­tween 2009 and 2012, the coal min­istry al­lowed Tata Steel, Jin­dal Steel & Power Ltd, In­te­grated Coal Min­ing Ltd, Sarda En­ergy Min­er­als Ltd and Elec­tros­teel Cast­ings Ltd to sell coal in the mar­ket,” says Sudiep Sri­vas­tava, a lawyer in Ch­hat­tis­garh and pe­ti­tioner in the coal scam case.

Some in­de­pen­dent power pro­duc­ers also pro­cured the sur­plus coal from cap­tive mines at a cheaper rate and gen­er­ated elec­tric­ity to sell it at a whop­ping ` 10 to ` 12 per unit in the short-term open mar­kets such as power ex­changes while gen­er­a­tion cost did not sur­pass ` 2.50 per unit. Power man­u­fac­tur­ers are sup­posed to en­ter into long-term agree­ments with power dis­tri­bu­tion com­pa­nies (dis­coms) which brings sta­bil­ity in elec­tric­ity prices. Cap­tive power pro­duc­ers also sold elec­tric­ity in th­ese ex­changes and charged ar­bi­trary prices, which ef­fec­tively in­creased elec­tric­ity bills for con­sumers.

In­ter­est­ingly, the Cen­tre rolled out two poli­cies to fa­cil­i­tate sale of elec­tric­ity lead­ing to cre­ation of short-term power mar­ket.The Elec­tric­ity Act of 2003, passed by nda, al­lowed pri­vate play­ers to trade elec­tric­ity. Then in 2005,the upa for­mu­lated the Na­tional Elec­tric­ity Pol­icy (nep) which called for cre­ation of power ex­changes for power trad­ing. “It was only in 2012, 16 years after coal blocks be­gan to be al­lo­cated to pri­vate firms, that the com­pa­nies were asked to par­tic­i­pate in power pro­cure­ment bids called by dis­coms or their au­tho­rised state agen­cies and en­ter into longterm power pur­chase agree­ment,” says Kalyan Ban­er­jee, Tri­namool Congress MP, who led Par­lia­men­tary Stand­ing Com­mit­tee of Coal. Since the en­tire process of al­lo­ca­tion was unau­tho­rised, no one should en­joy the ben­e­fit of al­lo­ca­tion, said Ban­er­jee, rec­om­mend­ing that all the coal blocks al­lo­cated to pri­vate power com­pa­nies should be scrapped.

The 46 coal blocks that the Cen­tre wants to be spared will pro­duce 53 mil­lion tonnes of

coal this year

Com­mu­ni­ties of Sin­grauli, Mad­hya Pradesh, protest against en­vi­ron­men­tal clear­ances granted to Ma­han coal block. They say their rights over the Ma­han for­est are yet to be set­tled

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