The UPA may find the charge of allowing private companies to profit from coal allocation more damaging than the 2G scam

With the Comptroller and Auditor General’s report on coal set to be tabled in Parliament on Friday and the Bharatiya Janata Party gathering its forces for a full fledged attack, the Monsoon session threatens to be a stormy one.

While ‘Coalgate’ resembles the 2G spectrum scam both in terms of the emerging evidence as well as the government’s defence, what makes the issue potentially incendiary is the opportunity the opposition has to drag the Prime Minister directly into midfield.

In the 2G scandal, the Prime Minister and the Finance Secretary sought spectrum auctions which A. Raja, who was Telecom Minister at the time, refused. But in Coalgate, it was the Coal Secretary who apparently sought auctions despite existing legislation, which the PM, with direct control of the coal portfolio at the time, seemingly ignored or overruled. This is the pivotal difference, though the forensics will only emerge once the CAG report is tabled.

Striking similarities

Both the 2G and the Coalgate scandals chronicle massive losses for the state exchequer with corresponding gain to private parties through the involvement or decision-making of key politicians and bureaucrats. Both spectrum and coal impact the daily lives of crores of Indian citizens. In both cases, the loss arose out of the use of discretionary powers to select and administer the mechanism for the allocation of the natural resource. For 2G, first-come, first-served (FCFS), and for coal, application-based selection was chosen over auctions. In both spectrum and coal, the allocations were made based on an application which required minimum detail, where awards can be justified by officials with scant public scrutiny. Spectrum allocation was guided by the Unified Access Service Licence guidelines while coal followed ‘captive block selection’ guidelines. Despite these guidelines being available online, transparency has come under serious question. The selection committees in both cases were bureaucrats from across Ministries/States who still failed to implement any safeguards.

In both cases, the modus operandi and staggering revenue loss estimates were independently assessed by the CAG, adding weight to the allegations. For both, an environment of controversy and suspicion was built based on a draft CAG report which eventually snowballed into a far bigger issue.

Rather than acting suo motu, in both scams, the CBI acted only after directions from the Central Vigilance Commission registering a preliminary enquiry for coal and an FIR for spectrum. Both were against ‘unknown persons’.

Same old, same old

The government has compromised its position by offering the same defence in both scandals, almost in the same pattern and in the same sequence of events.

Under pressure on the issue of transparency and procedure, the initial explanations given by Mr. Raja in his letters to the PM of November 2, 2007 and press releases of October 31 and November 7, 2008, bear striking resemblance to the Coal Ministry’s clarification of May 17, 2012. Both argue the case of transparent selection procedure. Mr. Raja had stated: “The department was not deviating from the existing procedure” and that “full transparency is being maintained by my ministry...” Likewise, the Coal Ministry claims: “The process of allocation of blocks was equitable, fair and just, which is borne out of the fact that there have never been any serious allegations against the working of the screening committee.”

Ten months after the 2G scam, on the eve of Unitech and Swan’s equity sales, Mr. Raja, under pressure from the press, defended FCFS by arguing the case of public interest and economic growth: “The basic aim and principles governing the sector is proliferation of telecom services in a competitive environment at affordable tariffs for the common people, and especially the rural masses.” He also argued that auctions would have led to an increase in spectrum prices and “retarded the fall of tariffs which would have been detrimental for the expansion of service”. Parroting this, Coal Minister Shriprakash Jaiswal has said administrative allocation was justified as it was needed for the nation’s growth, its industrial growth and for power production at affordable rates.

The government’s next line of defence was that revenue generation was never a priority for telecom. The Coal Ministry’s statement of May 27, 2012 also argues: “It may be stated that allocation of coal blocks was never looked upon as a potential source for generating revenue for the central government... The question of maximization of revenue does not arise at all.”

In both 2G and coal, the government is insisting its decision not to hold auctions was a matter of policy and government policy is not open to judicial scrutiny.

In both scams, show cause notices were issued to private companies in December 2010 for 2G and June 2012 for coal — over two years after the alleged wrongdoing, and only after intense media spotlight on the issues.

The last striking similarity is blaming everything on the previous government. Mr. Raja, Kapil Sibal, Salman Khurshid and even the PM, have all placed the blame for the allocation of 2G spectrum on an FCFS basis in 2008 at 2001 prices squarely on the NDA’s Cabinet decision of October 31, 2003. Ditto for Coalgate, where the NDA has been blamed by both Mr. Jaiswal and Minister of State in the PMO, V. Narayanswamy. Mr. Jaiswal has said that during the NDA government the allocation was made without any advertisements and was far less transparent while Mr. Narayanswamy has alleged that senior functionaries of the NDA have also benefited from Coalgate.

Could be worse

Despite the similarities with 2G, however, the UPA is likely to find the going tougher in the case of Coalgate. For starters, it comes in the wake of the 2G scam which, due to the CAG report and the Supreme Court judgement cancelling 122 licences, has already helped entrench the public view of corruption in the UPA government. Secondly, unlike in telecom, where Mr. Raja was in charge, the PM himself had the coal portfolio for the period for which the allegations are being made, giving the PM much less wiggle room than in 2G.

Thirdly, while for telecom, the success story of nearly 700 million subscribers and affordable tariffs helped mitigate the blow to the common man, on-ground experience relating to coal shortage, power cuts and price hikes makes the scam more directly painful for the common man. The recent failure of the northern grid twice over, impacting millions across eight States due to the worst ever power outage in over a decade, amply dents any argument that “cheap coal is for power for the masses”.

Fourthly, a coal scam can be explained far more easily than the 2G scam, allowing for damaging political campaigns with slogans in all languages spreading across India’s heartland. Finally, if allegations that the Coal Secretary did recommend auctions but was overruled or ignored by the PM are established, then the PM will need to explain why he himself recommended auctions for spectrum in 2007 but refused to implement the Coal Secretary’s advice in the same period in the Ministry that he directly controlled. The Cabinet’s decision to fix the reserve price for the 2G auctions at Rs.14,000 crore is another blow to the “cheap coal, therefore cheap power” excuse, removing the oft-quoted linkage between the price of a natural resource and tariffs.

The rubber will hit the road anytime now. Will the UPA effectively manage a situation which has the potential to spiral out of control? What will the government do differently this time given that this session of Parliament could become reminiscent of the winter session of 2010? These are questions that the next few weeks will answer.

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