August 27, 2012
PM’s statement in Parliament on the Performance Audit
Report on Allocation of Coal Blocks and Augmentation
of Coal Production
I seek the indulgence of the House to make a statement on
issues regarding coal block allocations which have been the
subject of much discussion in the press and on which several
Hon’ble members have also expressed concern.
2. The issues arise from a report of the Comptroller and
Auditor General which has been tabled in Parliament and
remitted to the Public Accounts Committee. CAG reports are
normally discussed in detail in the Public Accounts
Committee, when the Ministry concerned responds to the
issues raised. The PAC then submits its report to the Speaker
and that Report is then discussed in Parliament.
3. I seek your indulgence to depart from this established
procedure because of the nature of the allegations that are
being made and because I was holding the charge of Coal
Minister for a part of the time covered by the report. I want to
assure Hon’ble Members that as the Minister in charge, I take
full responsibility for the decisions of the Ministry. I wish to
say that any allegations of impropriety are without basis and
unsupported by the facts.
4. Allocation of coal blocks to private companies for
captive use commenced in 1993, after the Coal Mines
(Nationalisation) Act, 1973 was amended. This was done
with the objective of attracting private investments in
specified end uses. As the economy grew in size, the demand
for coal also grew and it became evident that Coal India Ltd.
alone would not be able to meet the growing demand.
5. Since 1993, allocation of captive coal blocks was being
done on the basis of recommendations made by an interMinisterial
Screening Committee which also had
representatives of State governments. Taking into account
the increasing number of applicants for coal block allocation,
the Government, in 2003, evolved a consolidated set of
guidelines to ensure transparency and consistency in
6. In the wake of rapidly growing demand for coal and
captive coal blocks, it was the UPA I Government which, for
the first time, conceived the idea of making allocations
through the competitive bidding route in June 2004.
7. The CAG report is critical of the allocations mainly on
three counts. Firstly, it states that the Screening Committee
did not follow a transparent and objective method while
making recommendations for allocation of coal blocks.
8. Secondly, it observes that competitive bidding could
have been introduced in 2006 by amending the administrative
instructions in vogue instead of going through a prolonged
legal examination of the issue which delayed the decision
9. Finally, the report mentions that the delay in
introduction of competitive bidding rendered the existing
process beneficial to a large number of private companies.
According to the assumptions and computations made by the
CAG, there is a financial gain of about Rs. 1.86 lakh crore to
10. The observations of the CAG are clearly disputable.
11. The policy of allocation of coal blocks to private
parties, which the CAG has criticised, was not a new policy
introduced by the UPA. The policy has existed since 1993 and
previous Governments also allocated coal blocks in precisely
the manner that the CAG has now criticised.
12. The UPA made improvements in the procedure in 2005
by inviting applications through open advertisements after
providing details of the coal blocks on offer along with the
guidelines and the conditions of allotment. These applications
were examined and evaluated by a broad based Steering
Committee with representatives from state governments,
related ministries of the central government and the coal
companies. The applications were assessed on parameters
such as the techno economic feasibility of the end use
project, status of preparedness to set up the end use project,
past track record in execution of projects, financial and
technical capabilities of the applicant companies,
recommendations of the state governments and the
administrative ministry concerned.
13. Any administrative allocation procedure involves some
judgment and in this case the judgment was that of the many
participants in the Screening Committee acting collectively.
There were then no allegations of impropriety in the
functioning of the Committee.
14. The CAG says that competitive bidding could have
been introduced in 2006 by amending the existing
administrative instructions. This premise of the CAG is
15. The observation of the CAG that the process of
competitive bidding could have been introduced by amending
the administrative instructions is based on the opinion
expressed by the Department of Legal Affairs in July and
August 2006. However, the CAG’s observation is based on a
selective reading of the opinions given by the Department of
16. Initially, the Government had initiated a proposal to
introduce competitive bidding by formulating appropriate
rules. This matter was referred to the Department of Legal
Affairs, which initially opined that amendment to the Coal
Mines (Nationalisation) Act would be necessary for this
17. A meeting was convened in the PMO on 25 July 2005
which was attended by representatives of coal and lignite
bearing states. In the meeting the representatives of state
governments were opposed to the proposed switch over to
competitive bidding. It was further noted that the legislative
changes that would be required for the proposed change
would require considerable time and the process of allocation
of coal blocks for captive mining could not be kept in
abeyance for so long given the pressing demand for coal.
Therefore, it was decided in this meeting to continue with the
allocation of coal blocks through the extant Screening
Committee procedure till the new competitive bidding
procedure became operational. This was a collective decision
of the centre and the state governments concerned.
18. It was only in August 2006 that the Department of
Legal Affairs opined that competitive bidding could be
introduced through administrative instructions. However, the
same Department also opined that legislative amendments
would be required for placing the proposed process on a
sound legal footing. In a meeting held in September, 2006,
Secretary, Department of Legal Affairs categorically opined
that having regard to the nature and scope of the relevant
legislation, it would be most appropriate to achieve the
objective through amendment to the Mines & Minerals
(Development & Regulation) Act.
19. In any case, in a democracy, it is difficult to accept the
notion that a decision of the Government to seek legislative
amendment to implement a change in policy should come for
adverse audit scrutiny. The issue was contentious and the
proposed change to competitive bidding required consensus
building among various stakeholders with divergent views,
which is inherent in the legislative process.
20. As stated above, major coal and lignite bearing states
like West Bengal, Chhattisgarh, Jharkhand, Orissa and
Rajasthan that were ruled by opposition parties, were
strongly opposed to a switch over to the process of
competitive bidding as they felt that it would increase the
cost of coal, adversely impact value addition and
development of industries in their areas and would dilute
their prerogative in the selection of lessees.
21. The then Chief Minister of Rajasthan Smt. Vasundhara
Raje wrote to me in April 2005 opposing competitive bidding
saying that it was against the spirit of the Sarkaria
Commission recommendations. Dr. Raman Singh, Chief
Minister of Chhattisgarh wrote to me in June 2005 seeking
continuation of the extant policy and requesting that any
changes in coal policy be made after arriving at a consensus
between the Central Government and the States. The State
Governments of West Bengal and Orissa also wrote formally
opposing a change to the system of competitive bidding.
22. Ministry of Power, too, felt that auctioning of coal
could lead to enhanced cost of producing energy.
23. It is pertinent to mention that the Coal Mines
Nationalisation (Amendment) Bill, 2000 to facilitate
commercial mining by private companies was pending in the
Parliament for a long time owing to stiff opposition from the
24. Despite the elaborate consultative process
undertaken prior to introducing the amendment Bill in
Parliament, the Standing Committee advised the Ministry of
Coal to carry out another round of discussions with the
States. This further demonstrates that the decision to seek
broader consultation and consensus through a Parliamentary
process was the right one.
25. The CAG report has criticised the Government for not
implementing this decision speedily enough. In retrospect, I
would readily agree that in a world where things can be done
by fiat, we could have done it faster. But, given the
complexities of the process of consensus building in our
Parliamentary system, this is easier said than done.
26. Let me humbly submit that, even if we accept CAG's
contention that benefits accrued to private companies, their
computations can be questioned on a number of technical
points. The CAG has computed financial gains to private
parties as being the difference between the average sale
price and the production cost of CIL of the estimated
extractable reserves of the allocated coal blocks. Firstly,
computation of extractable reserves based on averages
would not be correct. Secondly, the cost of production of coal
varies significantly from mine to mine even for CIL due to
varying geo-mining conditions, method of extraction, surface
features, number of settlements, availability of infrastructure
etc. Thirdly, CIL has been generally mining coal in areas with
better infrastructure and more favourable mining conditions,
whereas the coal blocks offered for captive mining are
generally located in areas with more difficult geological
conditions. Fourthly, a part of the gains would in any case get
appropriated by the government through taxation and under
the MMDR Bill, presently being considered by the parliament,
26% of the profits earned on coal mining operations would
have to be made available for local area development.
Therefore, aggregating the purported financial gains to
private parties merely on the basis of the average production
costs and sale price of CIL could be highly misleading.
Moreover, as the coal blocks were allocated to private
companies only for captive purposes for specified end-uses, it
would not be appropriate to link the allocated blocks to the
price of coal set by CIL.
27. There are other important technical issues which will
be gone into thoroughly in the Ministry of Coal's detailed
response to the PAC and I do not propose to focus on them.
28. It is true that the private parties that were allocated
captive coal blocks could not achieve their production
targets. This could be partly due to cumbersome processes
involved in getting statutory clearances, an issue we are
addressing separately. We have initiated action to cancel the
allocations of allottees who did not take adequate follow-up
action to commence production. Moreover, CBI is separately
investigating the allegations of malpractices, on the basis of
which due action will be taken against wrongdoers, if any.
29. From 1993 onwards, successive governments
continued with the policy of allocation of coal blocks for
captive use and did not treat such allocations as a revenue
generating activity. Let me reiterate that the idea of
introducing auction was conceived for the first time by the
UPA Government in the wake of increasing demand for
captive blocks. Action was initiated to examine the idea in all
its dimensions and the process culminated in Parliament
approving the necessary legislative amendments in 2010. The
law making process inevitably took time on account of
several factors that I have outlined.
30. While the process of making legislative changes was
in progress, the only alternative before the Government was
to continue with the current system of allocations through the
Screening Committee mechanism till the new system of
auction based competitive bidding could be put in place.
Stopping the process of allocation would only have delayed
the much needed expansion in the supply of coal. Although
the coal produced thus far from the blocks allocated to the
private sector is below the target, it is reasonable to expect
that as clearances are speeded up, production will come into
effect in the course of the Twelfth Plan. Postponing the
allocation of coal blocks until the new system was in place
would have meant lower energy production, lower GDP
growth and also lower revenues. It is unfortunate that the
CAG has not taken these aspects into account.
31. Let me state emphatically that it has always been the
intention of Government to augment production of coal by
making available coal blocks for captive mining through
transparent processes and guidelines which fully took into
account the legitimate concerns of all stakeholders, including
the State Governments. The implicit suggestion of the CAG
that the Government should have circumvented the
legislative process through administrative instructions, over
the registered objections of several state governments
including those ruled by opposition parties, if implemented
would have been undemocratic and contrary to the spirit of
the functioning of our federal polity. The facts speak for
themselves and show that the CAG’s findings are flawed on