Prime Minister Coalgate scam speech

August 27, 2012

New Delhi



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

allocation.

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

making process.

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

private parties.

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

flawed.

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

Legal Affairs.

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

purpose.

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

stakeholders.

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.

Hon’ble members,

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

multiple counts.