The Comptroller and Auditor-General’s report on the allocation of coal blocks, reviews how it took seven-and-half years to move the allocation procedure for captive coal blocks from a discretionary procedure to competitive bidding that was demonstrably transparent.
It turns out that the process began within six weeks of UPA-I coming to power in 2004. Ironically, the amendment to the Mines and Minerals (Development and Regulation) (MMDR) Act rules for auction by competitive bidding was notified as recently as February 2, 2012 — the same day that the Supreme Court, while cancelling 122 illegal licenses awarded by the then Telecom Minister, A Raja, directed an auction process to be followed for all valuable, scarce natural resources.
The twists and turns show how severe resistance — including periods of deathly silence and an absence of file movement ranging from three-and-half months to two years — was offered by policy masters, even during the Prime Minister’s tenure as the Coal Minister between 2006-9. During the seven-and-half year ordeal, one thing has emerged clearly — that the bureaucrats made every possible attempt to move coal allocation to a competitive bidding process but failed.
Since July 2004, 142 coal blocks (Net) have been allocated to various governments and private parties following a process which lacked transparency, objectivity and competition, which the CAG estimates to have caused a massive loss of Rs. 1.86 lakh crore to the exchequer.
The UPA-I government came into power in May 2004. Within six weeks on June 28, the concept of allocation of captive coal blocks through competitive bidding was first made public. Two weeks later, a comprehensive note on competitive bidding for allocation of coal blocks was placed by the then coal Secretary in front of Minister of State (Coal and Mines) stating that “since there is a substantial difference between the price of coal supplied by Coal India and coal produced through captive mining, there is a windfall gain to the person who is allocated a captive block.” The note suggested that “the bidding system will only tap part of the windfall profit for the public purposes.”
Immediately after, on July 30, the Coal Secretary mentioned that the present system of allocation in the changed scenario, even with modifications, would not be able to achieve the objectives of transparency and objectivity in the allocation process.
On August 20, the Coal Minister directed that a draft Cabinet note be prepared for the consideration and decision of the Cabinet.
Within three weeks, on September 11, a note was initiated from Prime Minister’s office detailing the disadvantages of allocation of coal blocks through competitive bidding. This was rejected by the Coal Secretary, who on September 25, submitted a draft Cabinet note to the Minister of State (MoS) with a remark that there were hardly any merits in the objections raised by the PMO. The note also spoke about the various pressures on the Steering Committee and stressed yet again that all pending applications should be allocated on the basis of competitive bidding.
On October 4, the MoS rejected the Coal Secretary’s view, arguing that competitive bidding may not be followed as it would invite further delay in the allocation of blocks considering that a legislation envisaging competitive bidding for allocation of coal for commercial purposes, called “Coal Mines (Nationalisation) Amendment Bill 2000” was pending in the Rajya Sabha with stiff opposition from trade unions and others. The MoS also disagreed with a view that the Screening Committee could not ensure transparent decision making and that this alone could not be ground for switching to competitive bidding.
Within 11 days, the Coal Secretary stated that the policy of allotment of coal blocks through competitive bidding was discussed in the PMO and since a number of applicants requested for allotment of blocks based on current policy – competitive bidding should not be resorted to at that time. Instead, competitive bidding should be made prospective on the basis of the proposed revised policy and not on the then policy. A cutoff date for considering applications as per the then policy and proposed revised policy was settled at June 28, 2004.
On November 1, the PMO directed the Coal Secretary to accordingly amend the draft Cabinet Note.
On February 25, the Coal Minister, on receipt of the reference of December 23, 2004 said that he was in complete agreement with the views expressed by the MoS in his note of October 4, 2004 and as such the proposal need not be proceeded further.
Two weeks later, the Coal Secretary on March 7, put up the draft Cabinet note for approval to the Coal Minister, stating that decisions on all applications received as on June 28, 2004 would be taken by end of March 2005 and if the revised procedure for allocation of coal blocks was not put in place, pressures would again mount on the government for discontinuing the present procedure which might not be desirable in the interest of going about total transparency in allocation of coal blocks.
On March 16 and 24, the PMO communicated that the draft note be updated and sent back urgently and approved the updated Cabinet note by the Coal Minister.
On July 4, the MoS in his note to the Coal Minister, stated that the implications of a Cabinet decision needed to be considered in great detail as there was a reluctance on the part of power utilities to participate in competitive bidding. On July 25, the PMO called a meeting where it was decided that the MoC would amend the Cabinet note yet again incorporating the concerns of State governments.
Since the amendment to the legislation for competitive bidding was likely to take time, it was decided that MoC would continue to allocate coal blocks for captive mining through the extant screening procedure. In August, the PMO requested the MoS to take urgent action on the decisions of the July meeting.
In January, the Coal Ministry stated that since the amendment of the Coal Mines Act would take time, the Department should be allowed to proceed to allocate captive coal blocks under existing mechanism.
On February 7, the Cabinet Secretary wrote to the Coal Minister seeking the expeditious drafting of the Cabinet note and on February 16, the Coal Secretary approved submission of the final note to the Cabinet Secretariat.
On March 7, at a meeting held in the PMO it was decided that it would be more appropriate to make amendments in the MMDR Act 1957 to make competitive bidding applicable to all minerals covered under that Act. On March 20, Coal Secretary approved the draft note to the Ministry of Mines with a request to obtain the Department of Legal Affairs’ comments.
Within a week, the MoS opined that the decision to amend the MMDR Act should be revisited as it involved withdrawing current powers of State governments and could become controversial. The Coal Minister agreed with the MoS citing federal polity.
In May, the Coal Minister’s advice was sent to Mines Ministry to modify the draft and the draft with suggestions from the Mines Ministry was referred to the Law Ministry.
In mid-September, the Coal Ministry conveyed to the PMO and the Cabinet Secretariat that the Law Ministry has advised to initiate suitable measures for amending the MMDR Act — to address competitive bidding. This led to a complete stalemate for two years till October 2008.
The MMDR (Amendment) Bill was introduced in Parliament by the Mines Ministry in October and was referred to the Standing Committee on Coal and Steel on October 31. Three-and-half months later, the Standing Committee submitted its report with certain recommendations. For six months there was no movement.
On February 18, the Mines Minister moved a motion for passage of the MMDR (Amendment) Bill in the budget session. Again, there was no movement for nearly six months till September 9, when the MMDR Act was notified in the gazette after having being passed in both Houses of Parliament during the monsoon session.
On September 22, the Coal Secretary chaired a meeting of the representatives of the Ministries of Power, Mines, Petroleum and Natural Gas, Steel, the Department of Industrial Policy and Promotions and Planning Commission to finalise the modalities for competitive bidding.
Draft bid documents were discussed at the meeting of the committee on January 31, 2011 and six months later, on July 25, a meeting was convened by the Coal Minister with various stakeholders to discuss the issue of competitive bidding.
Six months later, the amendment of the MMDR Act, rules for auctions by competitive bidding of coals mines was notified.