Saturday, 2 June 2012


Allegations of corruption were made by Team Anna in the allotment of coal blocks especially during the period 2006-09 when the PM was handling the charge of Coal Ministry. The PMO has issued a 7 point clarification in this regard. It is unfortunate that this clarification is misleading and seeks to hide many critical facts.

Our response to the said clarification is as follows:

1.       It is being said that the Government decided to introduce the concept of competitive bidding in 2005. However, according to the Government, it is the

consensus building for the proposed legislative amendments required to achieve that is what took so much of time.

Our response: This argument of PMO is misleading as:

Between 2004 and 2006 there was a series of communication that happened between the Ministry of Coal (MoC) and Department of Legal Affairs (DLA). The MoC wanted DLA's views on the way in which competitive bidding can be introduced as the mechanism for allocation of coal blocks. The Law Secretary repeatedly opined in July 2004, July 2006 and again in August 2006 that amendment to any existing Act (CMN or MMDR) is not a prerequisite to introduce competitive bidding for allocation of coal blocks. Therefore, introduction of competitive bidding was legally feasible for MoC. Despite this the MoC employed screening committee route to allocate coal blocks till 2009. Why? Moreover, why did it take 6 years to build consensus on the amendment to the Act and pass it. So many Acts have been passed in days. In fact, it was the PMO which shot down the proposal for issuing an ordinance saying that there was no urgency.

2.       PMO has given the following arguments for not opting for auction or competitive bidding:

a.       It is being said that .Coal blocks was never looked upon as a potential source for generating revenue for the central government. Hence the question of maximizing revenue does not arise at all..

Our response:

       i.      This appears to be the most specious argument presented by the PMO. It was not ordinary revenue that the government was foregoing. It is possible for different agencies to estimate this loss differently. However, CAG has estimated this loss as Rs. 1.8 Lakh Crore which certainly is not ordinary. Who took this decision to forego this revenue? Coal Secretary kept on opposing allocation of coal blocks through the Screening Committee method. He wanted auctions. His opinion was repeatedly rejected by the PMO. Therefore Coal Secretary was not a party to the decision to forego this revenue. So was this decision taken by PMO or the PM himself? Who in the PMO took this decision to forego revenue of this order? Does the PMO or PM have the power to take this decision? Is this decision recorded somewhere and can the minutes of this meeting be made public?

       ii.      The same argument was given by Mr. A Raja in 2G spectrum. This argument has already been rejected by the honorable Supreme Court.

     iii.      One fails to understand the internal contradiction in PMO.s clarification. On one hand they say that it was decided to introduce competitive bidding in 2005 and the consultation process was started accordingly. Obviously the method of competitive bidding would have led to increase in revenue. So, in principle, they decided to maximize revenue. However, in practice they started allocating mines in an arbitrary manner foregoing revenues. So there seems to be an apparent contradiction in the policy decision and its implementation.

b.       The demand for coal was increasing substantially, legislative changes would have taken a long time and therefore the Screening Committee was adopted.

Our response: This logic is far from truth. While upto 2005 a total 75 coal blocks were allocated, this number went upto 145 from 2006 to 2009. Surprisingly, only 1 coal block has been allocated since 2010.

Is the PMO saying that the demand for coal was limited before 2005, increased suddenly between 2006 and 2010 and again came down to negligible after that. What are the factors that can explain such a trend in the economy?

   3.  According to the PMO-.Since the blocks are allocated to private companies only for captive purposes for the specified end use, the question of linking the blocks to the Market Price/CIL price of coal does not arise at all..

Our response: This argument is also misleading and factually incorrect. Earlier the policy of government was that coal blocks were given only to those companies which had captive requirements and only for their captive use. This policy was changed and it was decided to allocate coal blocks to even mining companies who would be required to have legal binding and enforceable supply contracts with subsequent end users. This clearly shows that these middlemen mining companies would make all the windfall gains. The government allocates coal blocks at a very cheap price with the hope that the benefit will go to the consumers. However, the mining companies don.t do that. The mining company obtains coal blocks at throwaway prices from the government and provides coal to the end-user at Market Price thus making windfall gains. So it is not the consumer but the middleman mining company that benefits.

It is learnt that several companies which had no experience in steel, cement, power or mining were allocated coal blocks. Most of these coal blocks are yet to start production. In fact some of those companies which did not start coal production after receiving the blocks were subsequently again given more coal blocks despite their earlier violation.

How would the PM explain all these wrongdoings?

In this connection, pointed attention is brought to the following two extracts from the CAG report:

   Audit observed that the procedure followed for allocation of coal blocks lacked transparency and it failed to arrive at the optimal price at which allocation of blocks should have been made. MoC had recognized (June 2004) that there was substantial difference between the price of coal supplied by CIL and the cost of coal produced through coal blocks allocated for captive mining and as such there was a windfall gains to the allocattees. (pg 84).
   The concept of competitive bidding was first made public by the Government in June 2004 but was yet to be given effect to (Nov 2011). Competitive bidding would not only bring about .objectivity. and .transparency. in allocation procedure, but would also bring in revenue for the Government as part of the substantial windfall gains accruing to the allocattees of captive coal blocks was to be tapped through competitive bidding.  (pg 86)

Team India Against Corruption
Ph: 9718500606

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