Bidding for coal blocks could have yielded gains to government

Citing the Supreme Court judgment in the 2G spectrum case, which wanted to make the allocation of scarce natural resources transparent and competitive, the Comptroller and Auditor-General said the government could have tapped into a part of the Rs. 1.86 lakh-crore gain accrued to private parties from the nomination of coal blocks, had it opted for competitive bidding.

The CAG’s report, tabled in Parliament on Friday, is likely to put Prime Minister Manmohan Singh in a fix. The process for competitive bidding was initiated when he was in charge of Coal Ministry between 2006 and 2009; after correspondence among various Ministries for two years, between 2004 and 2006, the plan was dropped, though the Department of Legal Affairs and the Law Secretary, along with the Coal Secretary of the time, made a strong pitch for it.

The CAG has pointed the finger at the PMO for delaying a decision on one pretext or another. The process could have been introduced way back in 2006 as per the advice of the Department of Legal Affairs, which had said the course that was to be adopted — to amend the Mines and Mineral (Regulation and Development) Act, 1957, or to effect changes in the administrative instructions — was a matter of policy to be decided by the Coal Ministry that had brought up the issue. The same opinion was reiterated by the Law Secretary in August 2006. “Despite such clear advice, the Ministry of Coal went ahead with the allocation of coal blocks through the screening committee and advertised in September 2006 the allocation of 38 blocks and continued with this process till 2009,” the report says.

The report notes 25 firms, including Essar Power, Hindalco, Tata Steel, Tata Power and Jindal Steel and Power, gained Rs. 1.86 lakh crore from the coal blocks allocated to them on a nomination basis. “The government could have tapped [into] a part of this financial benefit by expediting decision on competitive bidding…”

The CAG has arrived at the estimated loss to the exchequer based on the average cost of production and sale price of opencast mines of Coal India during 2010-11, the report says.

“As of June 2004, 39 coal blocks stood allocated. During the period from July 2004 to September 2006, 71 more blocks were allocated. In all, since July 2004, 142 coal blocks had been allocated to various government and private parties through the existing process…, which lacked transparency, objectivity and competition. Audit is not in agreement with the Coal Ministry’s contention that conflicting opinions came on the competitive bidding issue as the Ministry of Law and Justice categorically mentioned on July 28, 2006 itself that the competitive route could be adopted through administrative arrangements. In fact, it was left to the Ministry of Coal to take action for the introduction of competitive bidding through administrative instructions. Amendment was advised by the Law and Justice Ministry in August 2006 on the request of the Ministry of Coal that the process be given a legal footing.”

In order to bring objectivity and transparency in the allocation and to help the government tap into a part of benefit accruing to those allotted captive coal blocks, the Coal Ministry should urgently work out modalities for allocation through competitive bidding, the report notes.