P.C. Parakh's note highlighted the concept of competitive bidding

Documents obtained by The Hindu show that the Union Coal Ministry was made aware of as far back as July 2004, that flawed policies that allotted captive coal blocks rather than auctioning them, would give unearned “windfall gains” to private parties.

A leaked draft report of the Comptroller and Auditor-General has reportedly estimated a loss of Rs. 10.67 lakh crore to the exchequer due to the government's failure to auction coal blocks.

In a comprehensive note on “Competitive Bidding for Allocation of Coal Blocks” placed before then-Minister of State for Coal and Mines Dasari Narayana Rao on July 16, 2004, then Coal Secretary P.C. Parakh pointed out that there was a “substantial difference” between the price of coal supplied by the Coal India Limited and the cost of coal produced through captive mining.

“There would be a windfall gain to the party who was allocated a captive block,” warned Mr. Parakh's note, prepared after a stakeholder's meeting the previous month had highlighted the concept of competitive bidding.

On July 28, the Minister of State sought clarifications on the proposal for allocation, regarding the likely opposition from the power sector, the impact of competitive bidding on price hike, and the government's liability and obligations.

By the end of that month, the Coal Secretary furnished the clarifications and repeated his warning that allocation was not a transparent process. “The present system of allocation in the changed scenario, even with modifications, would not be able to achieve the objectives of transparency and objectivity,” wrote Mr. Parakh on July 30.

Despite this evidence that the Coal Ministry was aware of the danger of corruption and windfall gains in its allocation system way back in 2004, Coal Minister Sriprakah Jaiswal has dismissed the very concept.

“While the concept of windfall gain is itself fallacious, even the calculation of the purported windfall gain appears to be erroneous,” he told The Indian Express earlier this week.

Arrest warrant issued

The entire file was then sent to the next level of Cabinet Minister. Interestingly, while Shibu Soren was the Cabinet Minister in-charge of Coal when the discussions on competitive bidding started within the Ministry, by July 24, he had been forced to resign due to an arrest warrant issued against him in the Chirudih massacre case.

Accordingly, the file landed up on Prime Minister Manmohan Singh's desk, since he took charge of the Ministry after Mr. Soren's resignation. On August 20, Dr. Singh directed that a Cabinet note be drafted to consider and decide on the competitive bidding proposal.

When he submitted the draft Cabinet note in September, the Coal Secretary added his remarks that there was hardly any merit in the objections raised in the PMO's note.

The Secretary, Mr. Parakh, also highlighted the different kinds of “pulls and pressure” experienced by the Screening Committee responsible for making allotment decisions, and again stressed that it was desirable that all pending applications were decided on the basis of competitive bidding.