Inside Story of Coalgate. Who benefited the most?

Overall Rating: star ratingstar ratingstar ratingstar ratingstar rating[5/5]Total Votes [ 1 ]  
Rate this page:

Coalgate, which is also being referred to as the Coal Mining Scam in the media, is a corruption scandal whereby the Comptroller and Auditor General of India’s (CAG) office has stated that the Union Government’s policy of allowing state held and private organizations to operate the various coal deposits of India instead of a public auction has resulted in a loss of 212.87 billion dollars or INR 1,067,000 crore.

The allotments were made between 2004 and 2009. The entire affair is yet to be investigated totally or proven as such. The whole affair is also being referred to as the Mother of All Scams by the Indian media.

In all the coal blocks in question had reserves of 33 billion tons and the government had allegedly allotted them without any fees whatsoever. The companies only needed to pay state governments royalty once they had started production.

The CAG has objected to the way the blocks were allocated. It has stated that on October 14, 2004 Manmohan Singh had consented to a proposal that allotment of coal blocks will be done via bidding. However, the policy was not implemented soon enough.

A noticeable aspect in this matter is that the Coal Mining Nationalisation Act 1973 does not prohibit the auctioning of coal blocks. It states that coal can only be mined by certified end users. Private companies are barred from non-captive or commercial mining. It does not provide any guidance regarding the ways in which coal blocks can be allotted.

Coalgate – the beneficiaries

Following are some of the major organizations involved in the scam and are supposed to have benefited from the scandal:

  • NTPC Limited
  • Essar Group
  • Jindal Steel and Power
  • Adani Group
  • Bhushan Power & Steel Ltd
  • ArcelorMittal
  • Jayaswal Neco
  • Lanco Group
  • Aditya Birla Group
  • Tata Steel
  • Hindalco
  • Monnet Ispat

The CAG report mentions that the processes for allotting the coal mines were not totally transparent. It does not say, though, that government favored any company willingly.

It is being estimated that the companies gained because the coal was virtually provided for free. The draft report of the CAG’s office states that if the mines had been provided for a certain fee it would have ensured some benefits for the tax payers as well.

The report also states that Reliance Power that had been provided the permission for ultra mega power projects at Tilaiya and Sasan received an unwarranted advantage that amounted to INR 15,849 crores.

Coalgate - blocks mentioned in the CAG report

The North Arkhapal coal block had been given to Strategic Energy Technology Systems, which is a joint venture between Sasol, a South African organization, and Tata Sons. The Ramchandi Promotional Block had been allocated to Jindal Steel & Power.

Both the above mentioned blocks had reserves of 1,500 million tons each and they were allotted on February 27, 2009. This was the final working day prior to the model code of conduct that was implemented on March 2, 2009 before the elections.

The two organizations beat 16 leading organizations such as Reliance Industries, Lanco Infratech, Indian Oil Corp, JSW Energy, and GMR Group. These blocks were used for pilot projects where coal was converted to oil.

Coalgate – role played by Ratan Tata led investment commission

During May 2006 the Indian government opted to de-reserve and re-allot 48 CIL blocks whose reserves amounted to more than 9 billion tons. This step was taken on the suggestion of an investment commission headed by Ratan Tata.

Tata Sons have stated that the suggestion was made to make sure coal production increased and hoarding could be prevented. It also revealed that the decision was to make sure that coal was used in a competitive manner.

The commission had also asked for coal blocks to be auctioned in a way similar to the exploration licensing policy applicable for the oil and gas sector.

Coalgate – how were the calculations in the CAG report done

The CAG’s office has estimated that 90 percent of the reserves will be extracted on a commercial basis. It has multiplied the aggregate recoverable reserves of different grades with the present prices being offered by Coal India.

Coal India’s prices are lower than global rates and the difference between them can go up to 70 percent on the basis of quality of coal. If the calculation of benefit is done based on the prevalent prices of the time when the blocks were allotted, it will come to 6.3 lakh crore rupees.

Coalgate – the present situation

As of now, the Prime Minister’s Office is trying to do damage control by picking out certain parts of the CAG’s report that indicate the findings are only introductory. A recent Transparency International Report indicates that there is a growing network of government officers and corporations especially in sectors such as power, oil, and mining.

The environmental implications of such a network have been expected to be dangerous and it can also have detrimental effect on the country’s economic development. Several political parties in the opposition such as the Bharatiya Janata Party (BJP) are trying to take advantage of the situation and win in the MCD elections.

The Left Front has criticized the ruling coalition, UPA of following the wrong policies to make sure that the major corporate houses are benefited. They have questioned the government’s decision to not opt for an auction as the mines are national resources.

D Raja, a CPI member has asked Manmohan Singh to come forward and explain his position on the whole issue. Sitaram Yechury, a CPI-M member and Rajya Sabha MP, has labeled it as a bigger crisis than the 2G scam and has called for it to be investigated properly.

You might be interested in:

  1. Budget 2012 – GAAR and what it means for FIIs
  2. Insurance and Tax Benefits in Budget 2012
Last Updated on 05 April 2012