The real coal scam

As in the 2G telecom scam, the highlight of the coal scam is that everyone in authority was aware of the problem, but no one chose to do anything about it. In the 2G case, the saving grace, such as it were, was coalition politics—A Raja belonged to the DMK and, if Manmohan Singh didn’t let him do what he wanted, the UPA government would have collapsed. At least that’s how it was justified. In the coal scam, however, no such excuse is possible since for the operative part of the scam, no coalition partner was in charge of the ministry; indeed, it was looked after by the Prime Minister himself. But what’s more scandalous than the R10.7 lakh crore the CAG report says were the undue benefits given to corporates, both in the public as well as private sector, is the manner in which all concerned behaved. And this is one part of the report where the CAG hasn’t issued even the slightest form of retraction!

For those who came in late, the CAG has said the report which estimates the undue benefits is only a draft one and, as far as some of the benefits are concerned, the CAG has changed its mind—no indication is given as to how much of the R10.7 lakh crore will not find its way to the final report. FE’s view (http://bit.ly/GXpfrJ) is that while the CAG has overestimated the benefits by a factor of five or so, the amounts involved are still very large.

The most evocative example, of course, is that of the 1,000 MW Jindal power plant in Chhattisgarh—most of the captive coal blocks have not started producing yet, so other examples are yet to come to light! While the company has been selling electricity at over R4.5 per unit in some years, the fuel costs have only been around 45 paise per unit. Keep in mind the capital costs of R1-1.5 per unit, and the plant has earned a return on equity of well over 100% in most years. In the case of Reliance, where the company was allowed to divert coal from the ultra-mega power plant, the coal costs will be the same 40-45 paise per unit while the power will be sold at well over R3 per unit. In the case of the Ruias, 500 MW has been contracted to Bihar at R3.26 and more such contracts are on the anvil.

But what is an even bigger scandal than this, is the (lack of) decision-making that went into the way coal blocks were to be allocated. Way back in June 2004, the Prime Minister’s Office (PMO), the CAG report points out, was in favour of auctions as opposed to a screening committee deciding on what most would agree was a pretty opaque method of allocation. The law ministry was asked for its view on whether auctions could be done under the Coal Mines (Nationalisation) Act, 1973 (CMN), read along with the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR)—the law ministry said an amendment to the CMN Act was required. By August 2004, the Prime Minister, who was the coal minister, asked that a Cabinet note be prepared on auctions. On September 11, 2004, the PMO forwarded a note to the coal ministry which pointed to problems with auctions! And, a few days later, the coal secretary argued the objections were frivolous. By October, the minister of state for coal was against auctions since the CMN amendment was being opposed by trade unions and was pending in the Rajya Sabha, and on October 14, 2004, the PMO asked the coal secretary to respond to the objections of the minister of state! The CAG report makes hilarious/sad reading as it shows just how limited the writ of the PMO is.

Many, many, many notes later (March 16, 2006), the final Cabinet note was approved but by now the view was that it might be better to just amend the MMDR Act so as to allow auctions of other mines as well. In July 2006, when the matter was referred to the law ministry again, this time just asking whether auctions were permissible under the MMDR Act, the law ministry said it could be done even by an administrative decision of the ministry since, under a certain reading, the Indian Contract Act of 1872 applied! But since the view was that an amendment to the MMDR Act would place the bidding process “on a higher level of legal footing” (whatever that might mean), even this didn’t settle things. The process went on, and on, and on.

The Cabinet approved the change in the MMDR Act on January 28, 2010 (that’s 66 months after the PMO initiated action on it!) and, despite all the tension between the government and the opposition, the MMDR Amendment Act was passed by both houses of Parliament on August 31, 2010, the President signed on to this on September 8 and it was gazetted on September 9, 2010. No auctions have been held even after this.

Is this corruption or incompetence, or corruption that ensures incompetence? It’s difficult to say conclusively but, like the 2G scam, this is yet another case of the powers-that-be knowing fully well the consequences of their inaction, but nothing happening despite this. It gives all concerned a somewhat credible cover, the only person that gets blamed is the ‘system’ and that, as we know, isn’t a juridical person! The tragedy is that when the CAG takes it up, enough people in government say ‘policy’ is outside the purview of the CAG. Ditto for when the courts take it up. In which case, whose job is it to ensure the government does its job? That’s what Parliament does, you’ll be told. But that doesn’t do too much, does it? That’s the beauty of the ‘system’, more cheques than balances. Till the next scam!