Private firms made windfall gain of Rs 1.86 lakh crore from coal blocks: CAG

Report names Essar, Tata and Jindal Steel and Power among beneficiaries

Published on:

17 Aug 2012, 1:38 pm

The Comptroller and Auditor General's (CAG) final report on the allocation of coal blocks and coal production, says that the private sector made a windfall gain of Rs 1.86 lakh crore between 2004 till now. This happened because the government failed to implement its own decision to introduce competitive bidding for coal blocks that was taken years ago. A part of this profit would have gone to the public exchequer. Many of these coal blocks are yet to start production because the government agencies failed to monitor development of mining in these blocks, the report uploaded on the CAG website states.

In March this year, a leading newspaper accessed the draft CAG report, which estimated the losses to the government at Rs 10.7 lakh crore—about 10 times more than spectrum allocation scam. However, CAG chief Vinod Rai was reported to have clarified that the estimates of losses made in the draft report were not to be taken as the final outcome of the report. On Wednesday, Union Finance Minister P Chidambaram had announced that the final CAG report would be tabled in the ongoing monsoon session of Lok Sabha. The findings of the CAG report led to a furore in the Lok Sabha on Friday. The minister of state in the Prime Minister's Office, V Narayanasamy, said that Public Accounts Committee (PAC) would examine the final CAG report and that a decision would be taken on it thereafter.

Union coal minister Sriprakash Jaiswal defended the government's coal allocation policy. He said the government does not fully agree with all the aspects of the CAG report. “The policy adopted by the government to allocate coal blocks is not faulty. The report was made on only a few aspects of allocation process,” he said. While the minister defended the allocation of the blocks to the private players, saying meeting energy needs was the prime concern of the government, the CAG report notes that there is a “widening gap between the demand and domestic production of coal and consequent increase in coal imports”.

Incidentally, the concept of competitive bidding process was first introduced on June 28, 2004, a month before allocation of coal blocks on a large scale was initiated by the government. But it was only on February 2, 2012, after a gap of eight years, when 142 coal blocks were allocated to various private and public players, that an amendment was made in Mines and Minerals (Development and Regulation) Act, which put competitive bidding of coal blocks in place. The CAG report gives an exhaustive account of how competitive bidding was marred by various bureaucratic procedures, while private players made the most of the gains.

They made a killing

The CAG report names names 25 companies, including Essar Power, Hindalco, Tata Steel and Power, Adani Group, Lanco, Vedanta group, Arcelor Mittal, Jindal Steel and Power and even smaller companies such as Nagpur-based Abhijeet Group and Delhi-based Bhusan Power and Steel for making windfall gains due to the lack of bidding process. The public exchequer also incurred loss of up to Rs 311.81 crores for not been able to recover the bank guarantee from the coal block developers, who failed to start mining in these blocks.

Main findings of CAG report

The concept of competitive bidding was first made public on June 28, 2004 at an interactive meeting held with the stakeholders. But the Government of India is yet to finalise the modus operandi of competitive bidding
July 2004 onwards, 142 coal blocks were allocated to various government agencies and private parties by following the existing process of allocation. But the amendment in the MMDR Act and rules for auctions by competitive bidding of coal mines were notified only on February 2, 2012 after inter-ministerial consultations
Delay in introduction of the process of competitive bidding rendered the existing process beneficial to the private companies. Audit has found financial gains to the tune of Rs 1.86 lakh crore likely to accrue to private coal block allottees (based on average cost of production and average sale price of opencast mines of CIL in the year 2010-11)
A part of this financial gain could have accrued to the national exchequer by operationalising the decision taken years earlier to introduce competitive bidding for allocation of coal blocks
With the declared objective for “Power for all by 2012”, the Government allocated 194 (net) coal blocks with aggregate geological reserves of 44,440 million tonnes to government and private parties as of March 31, 2012. The procedure followed for allocation of coal blocks to captive consumers lacked transparency as the allotments of coal blocks to prospective captive consumers were made merely on the basis of recommedation from the state governments and other administrative ministries without ensuring transparency and objectivity
Production of coal from captive mining was not encouraging. Out of 86 such coal blocks which were to produce 73 million tonne of coal during 2010-11, only 28 coal blocks which included 15 blocks allocated to private sector, could start production by March 31, 2011 and produce only 36.64 million tonne of coal during 2010-11
The abnormal time taken for obtaining mining leases, surface rights and the subsequent land acquisition, rehabilitation issues as also enormous delays in obtaining forest and environmental clearances from the Central and the state governments have severely hindered the commencement of production from captive coal blocks
Coal Controller's Organisation (CCO) may enter and inspect any colliery with a view to securing compliance of rules. However, CCO has not conducted any physical inspection of allocated coal blocks to ascertain the actual progress/production
There was an aggregate shortfall of production in Eastern Coal Limited (ECL) by 9.1 million tonnes, Central Coal Limited (CCL) by 5.88 million tonne and Mahanadi Coalfields Limited (MCL) by 22.86 million tonne during 06-07 to 10-11. Production from underground mines stagnated (9.28 % of the total production of CIL in 2010-11)
Screening committee minutes did not indicate how each one of the applicant for a particular coal block was evaluated. Transparent method for allocation was not followed
Guidelines clearly states that the blocks offered to the private sector should be at a reasonable distance from the existing mines and projects of Coal India Limited (CIL) for operational purposes. However, Moher and Moher-Amlohri Extension from Northern Coal Limited in Sept 2006 and allocation to Sasan Ultra Mega Power Project resulted in sharing the boundary of Amlohri Opencast Project of NCL with the private party. As such NCL could not access coal reserve of 48 million tonne of its Amlohri OCP. This also reduced its project life from 24 to 20 years. Similarly, sharing of boundary of the Nigahi Opencast project of Northern Coal Limited (NCL) with Moher-Amlohri Extension resulted in reduction of mineable reserves by 9 million tonnes
No monitoring was put in place in CIL for verification of end use coal