Everything on the Coalgate Scam

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[Lakshmi Dwivedi, a first year at NALSAR, has done this brilliant and exhaustively comprehensive piece on the Coalgate scam. Do go through it. Use the comments’ section to shoot questions, if any.]

Coalgate scandal (the suffix ‘gate’ is used internationally to refer to a number of scandals, derived from the Watergate scandal of USA) is a political scandal that had rocked the Indian parliament. Also nicknamed as the ‘mother of all scams’, in this, CAG alleged that the government should have auctioned the coal blocks to the private and public sector companies, which would have brought more money to the government coffers than the process they actually adopted of constituting a screening committee who would pass or reject proposal on the basis of a set criteria. However at no point did CAG allege that corruption was involved in the allotment. The CAG report triggered uproar with BJP making effects to corner UPA on this issue and UPA using all its force to defend itself.  A complaint was lodged in CBI who named almost a dozen of firms in its charge sheet affirming that they inflated their net worth, hid the fact that they already have prior coal mines allotment and hoarded the coal mines.

The initial process

Under the Coal Mines Nationalization Act, 1973, coal mining was exclusively reserved for public sector companies i.e. Coal India Limited (CIL) and Singareni Collieries Company Limited (SCCL).  But with increasing demand and constrained supply, amendments were made to the Act and it was decided that captive blocks can be allotted to specific end users. (Captive Blocks: Allotting Coal blocks to a specific user for a specific purpose. For example, if cement industry is allocated a captive coal block, the coal produce can be used only for the purpose of manufacturing cement and can’t be sold by that company)

A screening committee was constituted for the purpose of allotment but there were no set criteria for allotment. With only a letter of recommendation, one could get a mine allotted for itself. Meanwhile a committee was constituted to look into the modernization of coal sector. This expert committee for coal sector reforms was constituted under the chairmanship of TL Shankar who was also the chairman of Energy group administrative staff college. To rein in more transparency a set of eligibility criteria was set forth, according to which the blocks will be allotted. (To look into these criteria, one can go through the draft report of CAG pg 6 & 7 accessible here)

Charges against the government by CAG

To sum it up, these are the main charges put forth by CAG

  1.  The CAG draft report claimed that the present system lacked transparency and “there were no objective parameters to decide the allocation of coal blocks for selection of allocattees among the eligible bidders.”
  2. The government had legal authority to auction coal blocks. However, it chose otherwise. Even the law ministry had opined that there is no legal impediment to the process of allotting by competitive bidding and the same can be brought by an administrative auction
  3. The delay in introducing this system of competitive bidding rendered the existing system beneficial for the private players. This led to wrongful windfalls gains to the allocattees. The draft CAG report claimed that a loss of Rs. 10.7 lakh crore was caused to the exchequer.
    The reasoning behind taking 90% of the total reserves rather than the entire lot, according to CAG, is that “detailed exploration establishes reserves at a confidence level of 90%”. The report points out that the coal ministry had maintained in 2004 that the chances of any allocatee not being able to recover this much from the reserves “would be, if at all, very remote”. CAG has added that “the actual amount of gain to the allocatees may change depending upon the mining plan, cost of extraction of coal, market price of coal and quality

PM’s Defense

Even though the opposition was too noisy to let the PM speak, after the session, the PM spoke to the media in an attempt to defend their previous policy

  1. The particular method for allocation of coal blocks was much before UPA came into power and the other governments since 1993 followed the same process
  2. UPA brought transparency in this method by publicly inviting applications. The applicants were scrutinized by the committee which demonstrated no impropriety
  3. Even state governments ruled by opposition states like West Bengal, Chhattisgarh, Jharkhand, Orissa and Rajasthan opposed the move for competitive bidding claiming that this would increase cost of coal and hamper industrial development.
  4. On the charge that the decision should have been expeditiously implemented, PM conceded to it but said that the complexities of the parliamentary system can’t be ignored. He pleaded that legislative changes are inevitable and an amendment had to brought in to the Mines and Mineral Development Regulation Act, wherein competitive bidding for coal mines was introduced. Another amendment to the Mines and Minerals (Development and Regulation) Act, 2011 (Tabled before the parliament, but has not been passed) will introduce competitive biddings for all mines.  He also disputed the method of arriving at windfall gains.

Politicians in dock

The scam has named a number of bigwigs of the country. All of the following people were somehow connected to it.

  1. Union Minister Subodh Kant Sahay
  2. DMK’s S. Jagathrakshakan
  3. BJP’s Rajya Sabha MP Ajay Sancheti
  4. Congress’s Vijay Darda and his brother, Rajendra Darda, Maharshtra education minister
  5. Premchand Gupta- UPA’s partner and Rashtriya Lok Dal (RJD)
  6. Congress MP Naveen Jindal 
The lead cartoon published in ‘The Hindu’ on 22nd August 2012

The final CAG report

This was a much toned down report as compared to its draft version which appeared in the media. It not only brought down the windfall loss from 10.7 lakh crore to 1.86 lakh crore, it also listed a lesser number of companies (76 in the draft report and 57 in the final) but no where the final report exonerated Manmohan Singh or the PMO from the blame of delaying competitive bidding. As the then coal minister, Manmohan Singh in 2005 had opposed competitive bidding contending that it would delay the allocation process

Investigation

Two BJP MP’s Javadekar and Hansraj Ahir lodged complaints against the scam, which led CVC to direct CBI to investigate the case. It named a dozen of companies in its charge sheet

The coal ministry constituted an Inter-ministerial group (IMG) under the chairmanship of the additional secretary of coal ministry, Zohra Chaterjee. They met to review the progress of the coal blocks allotted without auction and recommended “de-allocation of a number of coal blocks for not only their failure to develop the mining assets within the given timeframe but also indulging in misrepresentation of facts, supplying fraudulent documents and giving misleading details of their companies and tie-ups, including joint ventures.”

A Public Interest Litigation was filed in the Supreme Court by ML Sharma praying for de-allocation of all the licenses. A bench consisting of RL Lodha and AR Dave strongly defended the CAG report as the Solicitor General Rohinton Nariman questioned the reliance on the CAG report when the matter is pending before the PAC. The Supreme Court issued notice to CBI and the centre on another joint petition filed by a NGO, Common Cause and other eminent people, including former cabinet secretary T S R  Subramanian, former chief election commissioner N Gopalaswami and others. Counsel Prashant Bhushan had questioned the independence of CBI in the investigation as all the accused were influential people.

The after effects

Apart from the windfall loss, this mother of all scams can also be blamed for loss of Rs 126 crore due to non functioning of the parliament. (It’s the parties which are more at fault). The entire monsoon session of the parliament was washed off with hardly four bills being passed. Functioning for just six of the 19 functioning days, this session was the second worse, the worst being the winter session of 2010 when the house was paralyzed with the opposition’s demand for a JPC on the 2G scam. And the opposition’s demand this time? “We want the PM to resign!”

Coalgate is also in news for the big explosion caused by Naveen Jindal’s sting operation against Zee news channel which led to the arrest of their editor, Sudhir Chaudhary and their Business editor, Samir Ahluwalia. In this ‘reverse sting’ operation on the media house, Navin Jindal has claimed that the Zee editors tried to extort Rs. 100 crore in return for not “running stories on allegations Jindal’s firm Jindal Steel and Power Limited (JSPL) is facing in the coal block allegation scam.” In return, Sudhir Chaudhary has slapped Jindal with a defamation notice. Zee chairman, Subhash Chandra who is also the chairman of Essel group, expressed his readiness to join the investigation.

11 COMMENTS

  1. This   craze to sensationalize   a serious  issue has assumed alarming proportions  . With the advent of the   television media and the  24 hour news channel,  serious issues are trivialized.
    Now , CAG is only pointing  at a  potential loss based on   the entire life of the mining license and the sale of    the entire declared coal reserves. If this  process has been so profitable  why would the successful     allottees not  started the mining operations? Instead they had spent huge  sums on acquiring    mines   abroad. In Indonesia and  Australia. Let us not forget that  today mining has come at a great cost  and with   manufactured environmental issues   and  intense resistance from local  interests, the   successful   companies have adopted a wait and watch attitude
    This is not all a Gold mine as the author   believes it to be

    Moreover, assuming  the allegation to be true, if the  precious national  asset has been given away  at a steep discount, the beneficiary  has been the power and steel companies  . In other words the beneficiaries have been  the core industries and not  traders and in an intensely competitive market to the benefit would be passed on to the consumers. This is better than to wait for the inefficient Coal India to  extract these resources. Having the largest reserves, it is a ntional shame that we import   the maximum coal in the world.  .If the competitive bidding  had been introduced  only the moneyed   traders and  PE investors would have gained  and they would have traded the  license to the  ultimate   consumers

     The very fact that opposition ruled states have also been   involved in the ultimate selection shows   Government ‘s   commitment to transparency. Having partnered the loot, if it were,  why should the  opposition cry wolf now/

    Instead of  blinding   following CAG’s report it would have been better if the author had relied on  common sense  to  evaluate the criminal intent , if any in the allotment process 

    • Hi, if you read the article carefully,no where is the article evaluating on the criminal intent of the parties concerned. The big authorities have done their investigation and some are still doing it. This is for the purpose of general knowledge

      • As a law student  you should have expressed your opinion or presented your point of view with sound arguments  instead of  being a mere reporter.When you term it as “Mother of all scams”,   ( the penultimate para) are you not passing a judgement?

        • Since, this is for augmenting the ‘gyan’ about the scam, i thought it is better to rest my lawyer side for once and present them with ‘everything on coalgate’ right from what CAG thought to what PM thought. and yes, “mother of all scams’ is not a judgement because if you read the first para, you understand that this is the name given by the media. Buckle up your current affairs!

          • @Subu. You talk as if you’ve been accused of being involved in this scam. Chill out, dude. We put stuff here for your GK. If you don’t want it, then you can choose not to read any of this. As far as I’m concerned, I’d appreciate the time and effort that Lakshmi has put into this in spite of her hectic internship.

            • This level of intolerance  does not augur well for a budding lawyer. A smart legal  professional responds to  a difference in  opinion  based  on sound logic. Merely taking cover that this is  only a Gk issue does not portray your skills of advocacy  well. 

              There is an accusation that  coal licenses have been given away   on unjust basis and my view is that  there is another side to  this accusation which   would portray this  Decion in good light.
              Evaluate the  demerits in this line  of thought  and  highlight  them. Tell me the fallacy . This  becomes a vibrant  platform for  informed  discussion, instead of merely being  an outdated newspaper.  

  2. Terrific read. All this hulabaloo about the coal scam became crystallized in one instant. Very nicely written. Thank you!

    @Subu- Quoting Joker from The Dark Knight, “Why so serious?” This article is for GK purposes, if you already think you know too much, why bother reading? 

  3. lakshmi dwivedi, thank you very much for this.
    apart from the hectic schedules you people have,you upload such helpful things like these reports and most of all, the compendiums for us.
    really really grateful to you guys.
    best wishes.:)

  4. This is a novice’s report and has no objective analysis except just accepting the media sensationalism as gospel truth.

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