Coal Scam – 2012

INTRODUCTION :

India is one of the largest producers of coal in the world.
The coal-rich region in India includes huge swathes of eastern states like Orissa, Jharkhand and Chhattisgarh, and pockets in the central and southern parts of the country.

More than half of India’s commercial energy needs are met by coal. It is the main fuel for generating power and making steel and cement.
Coal allocation scam or Coalgate, as referred by the media, is a political scandal concerning the Indian government’s allocation of the nation’s coal deposits to public sector entities (PSEs) and private companies. In a draft report issued in March 2012, the Comptroller and Auditor General of India (CAG) office accused the Government of India of allocating coal blocks in an inefficient manner during the period 2004-2009.

COAL BLOCKS :

Large areas containing coal are divided into blocks, which can then be leased to mining companies.The state-owned Coal India Limited (CIL) is the only agency which sells coal in India. It is also the world’s largest producer of coal – during 2011-12, it produced more than 435 million tonnes of coal.

How coal blocks are allotted :

Previous : Coal mining in India was taken over by the government in 1973.
However, in 1976, the government allowed private producers of iron and steel to own coal mines for their own use. Power and other companies were also allowed to own their own coal mines from 1993.

Current : Coal fields are currently allocated by a screening commitee.Interested firms are ranked on the basis of different parameters such as land and environmental clearances.

CAG report :

The ministry of coal, headed at the time by Prime Minister Manmohan Singh, gave away licences for captive blocks to state-owned and private companies through a screening committee set up in 1992.
The criteria for allocating these licences were modified three times – in 2005, 2006 and 2008.
The independent Comptroller and Auditor General of India (CAG) has said the guidelines for leasing out coal blocks were non-transparent.The move benefited the companies by allocating them 57 coal blocks without auction.The delay in the introduction of  process of competitive bidding has rendered the existing process beneficial to private owners.According to report they may have gained around Rs 186,00 crores.If transparent auction method would have been adopted the exchequer could have gained.

What were the pitfalls that led to Coal Scam  ??

1.CAG observed that procedure followed for allocation of coal blocks to captive consumers lacked transparency as the allotments were made merely on the basis of recommendations from state govt and other administrative ministries without ensuring transparency and objectivity.

2.A few private firms won licences for coalfields which contained more coal than was needed for generating their own power.(RPL)

3.The permission to use surplus coal into other projects of the bidder after the contract.based on acceptance of lower tariff,resulted in post-bid concessions to developer.

4.The CAG felt that “the process of bringing in transparency and objectivity in the allocation process of coal blocks… got delayed at various stages”.

Is Auction a good option ?

In 2004, the government first mooted the idea of auctioning coal blocks to companies needing fuel for their own use.
But over the next few years, an attempt to move towards auctioning coalfields hit an obstacle.The govt is framing guidelines and rules for the proposed competitive bidding for auction of coal blocks.
Competitive bidding – where bids are sealed and submitted by interested parties and opened in front of everyone – is a more sensible process as it does not include multiple bidding.
However, it can be manipulated by both the bidders and policy makers.
Therefore, what is required is a transparent process, which is known to all and where evaluation parameters are set (and not changed midway).
Most importantly, information about the policy and process should be available to the public, and not be shrouded in secrecy.

CAG suggestions :

1.The CAG felt the prevailing guidelines allowed a “windfall gain” to the company which had been allotted a coal block for its own use as there was a “substantial difference” between the high market price of coal – sold by CIL or imported – and the lower cost of coal produced by a so-called “captive” block.
What it meant was that a company mined its own coal paid less for the coal than a company which bought it on the open market.

2.Need to constitute an empowered group along the lines of Foreign Invetment Promotion Board as a single window mechanism with representatives of central and states govts to decide on mining lease,mining plan,forest clearance,environment management plan and land acquision for accelerating the procedures for commencement of production.

Conclusion :

The delayed  implementation of competitive bidding process for allotment of coal blocks led to the loss of Rs 1.86 lakh crore at the cost of the non-renewable natural resource. Making guidelines and introduce transparency in allocation of licences to private partners would able to put a check on these kind of shameful incidents.Speedy and effective resolutions are the needs of the current time.