Coal Nationalization, Captive Mining and Coal-Gate

The importance of coal in the economy can be gauged from the fact that around 54 % of the current total installed electricity generation capacity and 70% of current electricity generation is coal based. Currently, India is third largest coal consuming country after China and USA. Since most of the coal produced in India is of non-coking quality; and has high ash content, India has to import around 85 million tonnes of coal every year. Of this, around 25  million  tons  is metallurgical coking coal for the iron & steel industry. The balance is thermal coal used by power plants (50%),  cement  industry  (17%)  and  other  industries  (33%).  India imports its coal mainly from Australia, Indonesia, New Zealand and South Africa.

Nationalization of Coal Mines

Increasing coal production has been one of the key policy objectives ever since India got freedom. Coal sector was in private hands in British Era but after independence the sector went into government control. First government organizations were National Coal Development Corporation (NCDC) and Singareni Collieries Company Ltd. (SCCL).

• The major nationalization of coal mines occurred in 1970s when the Coking Coal Mines (Nationalisation) Act, 1972 brought all coking coal mines and the coke oven plants (other than TISCO and ISCO) under the Bharat Coking Coal Limited (BCCL), a new Central Government Undertaking. All these mines were nationalized under the Coal Mines (Nationalisation) Act, 1973. To manage the non-coking coal mines, the Coal Mines Authority Limited (CMAL) was set up and National Coal Development Corporation were brought under the Central Division of the CMAL.
• In 1975, Coal India Limited was formed as a holding company with five subsidiaries namely Bharat Coking Coal Limited (BCCL), Central Coalfields Limited (CCL), Eastern Coalfields Limited ( ECL ), Western Coalfields Limited ( WCL ) and Central Mine Planning and Design Institute Limited ( CMPDIL ).

The Indian coal sector was thus dominated by Government and remains so even today. Coal India Ltd. has 81% share in production while Singareni  Collieries  Company  Ltd has 9.5% share. Remaining coal comes from privately owned collieries and captive coal mines.

1993 Amendment of CMNA

The Coal Mines Nationalization Act 1976, or the CMNA had a provision that mining lease to any institution that is not “Central government, Central government company or Central government corporation” is illegal. In 1993, this act was amended to allow for sub-leases to be granted if two conditions are satisfied:

1. the reserves of coal in the area are in isolated small pockets or are not sufficient for scientific and economical development in a coordinated and integrated manner
2. the coal produced by the sub-lessee will not be required to be transported by rail.

This implies that if the coal blocks had junk, it could be sub-leased and that the junk could not blacken our railroads. With this, the central government had introduced its Captive mining policy in 1993.

Captive Mining Policy

Captive Mining Policy is there in place since 1970s but it  became a major policy only after 1993. In 1970s, all the coal mining private leases were terminated via the Coal Mines (Nationalization) Amendment Act 1976 but some exceptions were allowed because the nationalized coal companies were unable to fully meet demand. Since 1976, the captive mines were allocated to Iron and Steel companies only. Via the 1993 amendment, the captive mines were allowed to be allocated to power producing companies too. In 2007, captive mining were allowed for coal gasification and liquefaction also.

The concept of captive mining means that some mines are allocated to the companies for its own need. The captive mining concept was devised so that the Iron, Steel and Power producing units could get uninterrupted supply of coal. Via this policy, government started giving coal blocks to companies for captive use. The condition was that these companies could only use the coal for their own use such as in power projects, steel mills, etc. but the sale of coal in open market was not permitted.

From 1993 till 2011, the Coal Ministry under 6 years of NDA rule and rest 11 years under UPA rule had allocated 194 coal blocks for captive mining of which 142 were explored and balance 52 remained either partially explored or unexplored.

Coalgate

In a March 2012 draft report, the CAG accused Government of India of allocating coal blocks in inefficient manner during 2004-2009 period.

• The basic argument of CBI was that the government chose to NOT to allocate the coal blocks by process of competitive bidding.
• Coal blocks were given free resulting in the block-owners making windfall gains.
• The functioning of the screening committee which evaluated the coal applications was opaque.
• A few companies got more than required coal.
• Companies with political links got multiple blocks while more deserving candidates did not get any.
• Ministers and CMs of the coal rich states lobbied for allotment to desired private players.
• Private players resold the allocation and coal produced in the open market

The scam began to unearth when a BJP MP Hansraj Ahir kept saying that some companies with captive coal blocks were changing hands. In 2012, the draft CAG report said that the Government had lost Rs. 10.6 lakh crore due to not auctioning these blocks. This number was later revised in the final report to Rs. 1.86 lakh crore. The substantial difference between high market price of coal sold by CIL and lower cost of coal produced by captive blocks; was one of the criteria to ascertain the loss in the CAG report.

CBI Probe and Autonomy Issues

The Central Vigilance Commission (CVC) directed a CBI inquiry in May 2012 on the basis of compliant of two BJP MPs viz. Prakash Javedkar (currently Environment Minister) and Hansraj Ahir.

The UPA government refuted the CAG claims on the basis of argument that it’s a “presumptive loss theory” as no mining had taken place yet. Taking a defensive stand, UPA also created its Inter-ministers group to review the allocation process, and de-allocate the coal blocks or forfeiture of the bank guarantees of the companies.

But meanwhile, a PIL was filed in Supreme Court in September 2012. This petition sought cancellation of 194 coal blocks. The apex court agreed to hear the case while monitoring the CBI inquiry. However soon, in the backdrop of apprehensions regarding autonomy of the CBI, the SC asked CBI to not to share probe details with government.

In May 2013, the CBI submitted to the Court that law minister Ashwani Kumar had been vetting its responses and affidavits to the Court in this case. In fact, the agency admitted that Ashwani Kumar and two government officials had changed some parts of its affidavit, though it also maintained that these parts related to preliminary enquiries and changes in these parts did not change the overall character of the report. However, this revelation made the apex court come down heavily on CBI and the government, calling CBI a “caged parrot that has many masters” and asking the government to ensure greater functional autonomy for CBI in investigation in corruption cases.

Subsequent hearings in the case led to CBI filing affidavits on specific details of its demand for greater autonomy. At the same time, the Centre has also filed its objections against few of the demands for autonomy by CBI.

Cancellation of the Blocks

In April 2013, a report by Standing Committee on Coal and Steel was tabled in the Parliament. This report said that the coal blocks were distributed in unauthorized manner between 1993 and 2008. This report also said that the mines where production not started should be cancelled.

In June 2013, the CBI registered an FIR against Congress MP Naveen Jindal and Dasari Narayana Rao, former Minister of State for coal. In 2013, CBI also filed FIR against Kumar Mangalam Birla and former coal secretary PC Parekh. These cases against these two was closed in 2014. In the same year, the Supreme Court established a special CBI court to try all coal field allocation cases.

Implication of coal scam on Economy

The adverse impact of the above mentioned scam was on the competitive advantage. The blocks were taken away from Coal India and were given for captive use. The PSU did not have enough coal to meet the rising demand from the thermal power projects. The companies which relied on coal, could not compete with the companies which had captive coal blocks. The country was already dependent on coal import and this dependence further increased.

The Standing Committee on Coal and Steel revealed in 2013 that despite the country being in an acute coal shortage, just 30 of the 195 captive coal blocks had begun mining.

Supreme Court Decision

In October 2014, Supreme Court cancelled the allocation of 214 out of 218 coal blocks. The judgement said that the screening committee has never been consistent, transparent and there was no proper application of mind. The four coal blocks which were exempted included two ultra mega power projects

• Moher and Moher Amroli Extension (Sasan Power Ltd)
• Tasra (Steel Authority of India Ltd)
• Pakri Barwadih (National Thermal Power Corporation)

A few companies decided to petition the Supreme Court to review its order.  The supreme court decision was feared to bring cloud on investments in power sector, affecting some 28000 MW power capacity, to further dependency on coal imports. Also, a large part of non-performing assets (NPA) belong to iron & steel sector, so there was fear of rising NPAs in Public Sector banks. Part of the commentariat said that government decision would loss to state in terms of royalty, cess and taxes.

Critical Analysis: Implications of Supreme Court Decision

The supreme court decision was a logical outcome of the case. This decision allowed fresh, transparent means of apportioning finite natural resources. The country is plagued by a morally compromised system in which public policy is often overshadowed by power, influence and ‘connections’. Arbitrary, non-transparent and ad hoc processes have eroded public faith in decision-making. The verdict, similar to the earlier one that cancelled 122 telecom licences allotted illegally, is an affirmation of the principle that the courts will not countenance the undesirable nexus between public office holders and big business, or anyone profiting from venality.

The judgment was a vindication for those who stand for transparency and probity in the process of commercial exploitation of natural resources.