UPA
government is walking a tight rope as it plunged in yet another massive
Coalgate Scam which is allegedly the biggest in the history of the country.
Parliament proceedings has been halted for nine continuous days now on the
demand of resignation of Prime Minister as he was holding the portfolio of
Minister of Coal at time of many of the tainted allocations of captive blocks
to favoured private parties. It is feared that whole monsoon session will be
white washed without the people of country getting to see a reasoned debate on
the scam in the Lok Sabha to fix the responsibility. Ironically it is principle
opposition party BJP which is stalling parliamentary proceedings though it is
not over the board in the same scam as its Chief Minister of Rajasthan and
Chattisgarh are on record in opposing competitive bidding for allocating
captive coal mines and more importantly erstwhile NDA govt headed by BJP in
2000 even attempted to open coal mining for commercial purposes by private
companies through amending Coal (Nationalisation) Act, 1973. Though, the
amendment has not been carried to date in wake of opposition from Left parties
and trade unions and was used by the UPA govt as a pretext to continue with the
policy of allocation of captive blocks in non-transparent manner!! (More on it
later) It
can only be left to imagination of what would be the extent of scam in the
backdrop of magnitude, which the country witnessed only for captive
allocation of coal blocks, if amendment seeking
commercial exploitation of coal by private companies would
have carried the day.
Undue benefits through primitive accumulation
CAG
in its recently tabled report in Parliament on, ‘Performance Audit on
allocation of Coal blocks and augmentation of Coal Production’ has revealed
that non-transparent procedures adopted in allocations of captive coal blocks
due to lack of competitive bidding has resulted in undue benefit to the tune of
staggering Rs 1.86 lakh Crore to the private corporations. How these gains were
made possible? It was very much similar to 2G scam where corporate-political
nexus worked in a way that made possible the looting of natural resources of
the country to allow private parties to reap the benefit in form of windfall
gains by transferring precious natural resources to them at dirty cheap prices.
Some may argue that it was case of crony capitalism but more than this, it was
sophisticated form of ‘Primitive accumulation’ in which all checks of the even
bourgeois parliamentary democracy was given a go by to effect direct transfer
of natural scarce resources, supposed to be owned collectively by the people of
the country through the instrumentality of state, to private corporate
interests for hefty gains.
Delaying action on decision to avoid competitive
bidding
The scam was perpetuated in a way that government even went on
delaying action on its own decision of June 28, 2004 to move ahead with
competitive bidding for allocating captive coal blocks in numerous ways. With
rumours doing the round in 2004 that change in policy for allocation of captive
coal blocks would be effected soon there was mad rush to corner the mines among
the corporate within existing beneficial policy framework. Another major reason
for rush was substantial rise in price of coal in international market (because
of spurt in demand from China) during the period from $ 25-30 per tonne in 2004
to S 180 in July, 2008 opening up the possibility of windfall gains further. At
present, it has been settled around the range of $ 100-105 per tonne. Within
period of 2004-09 as per CAG report as much as 142 coal blocks was allotted out
of which 75 went to private parties. The rush can be understood from the fact
that there were only 39 blocks in total that stood allocated as on June, 2004
in all past years.
Rational for competitive
bidding
The
existing policy which was sought to be changed, which never materialized, was
the prevailing method to allocate mines through ‘Inter-Ministerial Screening
Committee’ set up through administrative order by then Congress govt headed by
Narshima rao in 1992. It is amply clear from the series of documents relied
upon by CAG in its report that the PMO repeatedly rejected the explicit
recommendation of Secretary (Coal) to shift to the system of competitive
bidding as the prevailing system lacked ‘transparency and objectivity’ and
results in different kinds of pulls and pressures experienced by the Screening
Committee during the selection process.
He also in a way indicated the reason for such pull and pressure when he
observed in 2004 note itself on the issue that there was a “substantial difference
between the price of coal supplied by Coal India Limited and the cost of coal
produced through captive mining,” resulting in a “windfall gain to the party
who was allocated a captive block.”
These piece of advice was never followed and Secretary (Coal) stand was
later vindicated when CAG report itself observed that there was no transparency
in the procedures followed by screening committee as the minutes of the
committee failed to record the detailed reasons and rationale for allocation of
captive coal blocks to particular private applicant. The Secretary (Coal) stand
that allocation under present method would only result in windfall gains to
‘private beneficiaries’ in all likelihood was also proved to be correct as CAG
report noted, “Delay in introduction of process of competitive bidding has
rendered the existing process beneficial to a large number of private companies
as had been observed by then Secretary (Coal) in June, 2004 itself”. As we have
already seen the deliberate delay by the govt to effect change in existing
policy, in one pretext or the other, for full seven years as resulted in undue
gains to private companies of whopping Rs 1.86 lakh Crore.
Pretext for delay
Most relied upon argument to delay the change in policy was that
Coal Mines (Nationalisation) Act, 1973 and Mines and Minerals (Development and
Regulation) Act, 1957 need to be amended before the shift to competitive
bidding could be done. It was so even when Ministry for Law and Justice clearly
spelt out in 2006 that there was “no legal impediment” in making the shift
without amending the laws as the existing mechanism too has come in existence
through administrative order. Prime Minister in his recent statement in
parliament on coal scam is now arguing that, “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.” And reading the argument one remain stuck whether in a
democracy the delay in amending the law can be utilized to transfer control of
natural resources through existing policy, the limitations of which a senior
rank officer is continuously pointing out, and especially when the rate of
allocation is rising at an alarming rate from 3-4 blocks per year earlier to 53
coal blocks in 2006, 52 in 2007, 24 in 2008 and 19 in 2009 sufficient to raise
eyebrow of any reasonable man with clean intention that something is
fishy.
Flawed argument behind
allotting captive blocks
It
is to be understood that whenever there is transfer of resources an element of loss in long run
would always accrue to govt due to shift of command and control of ‘stock’
of natural reserves to private
companies. It’s true that allocation through competitive bidding can make the
process more fair and transparent but it too can never recover the whole loss
inherent in the process of transfer from public control to private control. The
point would be further clear when one reads observation in CAG report that, “A
part of this financial gain (windfall profit accruing to private companies)
could have been tapped by the government by taking timely decision on
competitive bidding of allocation of coal blocks.” Thus only a ‘part’ can be
recouped by the process of competitive bidding. This is for the simple reason
that private companies would only exploit natural reserves in a way that can
satisfy their ‘profit’ motive. The govt. only facilitated this profiteering
when it allowed Reliance Power’s ultra mega projects (UMPPs) at Sasan and
Tilaiya (dealt separately in another CAG report as they were allocated through
tariff based competitive route) to divert surplus coal from its two captive
mines post-facto violating bid guidelines by changing rules of game which resulted
in “undue benefits” of Rs 15,489 Crore. Similar benefits accrued to Tata-Sasol
combine and Jindal Steel and Power for ‘Ccoal
to L liquid’
project in Orissa of Rs 33,060 Crore and Rs 21,226 Crore respectively.
The
possibility of allocating coal mines for captive purpose for specified end use
was opened up in 1993 through amendment to Coal Mines (Nationalisation) Act,
1993. The rationale given for same was that public sector company, Coal India
Limited is not in a position to augment supply of coal to keep with the growing
demand. It can be anybody guess that why instead of augmenting the capacity of
CIL by streamlining its operations, govt. seek to transfer the stock and
control of precious natural resources through captive route in pretext of
ensuring supplies of coal to them. It could have also been done through
dedicated ‘supply contract’ by such industries with CIL. Even specified mines
could have possibly been dedicated for the purpose where extraction could continue
to be done by CIL as earlier. This would have served the purpose and it
wouldn’t have resulted in cornering of mines by private companies in such
dubious ways as brought out by CAG report on captive coal block allocation. The
argument that it would augment production in leaps too didn’t hold ground when
one looks at the fact that out of 86 captive coal blocks with targeted coal
production of 73 million tonnes, which were scheduled to start production in XI
plan period (up to 2010-11), only 28 coal blocks (including 15 in private
sector) started production as of March, 31 2011. They produced only 34 million
tonne coal during 2010-11, 52.55 percent short of the target. Private sector
captive coal mines allotted in the concerned period accounts for less than 5
percent of total coal production but has been able to corner more than 15
percent of proven reserve of 1,13,407 million tonne in the country.
If one
analyses these facts the haste shown in allocating coal blocks for the presumed
reason of augmenting production of coal doesn’t hold water but it has certainly
succeeded in effecting more than proportionate permanent transfer of natural
reserves for future profiteering by corporate beneficiaries!
Another
rational that is often offered by govt. circles is that in
case coal blocks would have been up for
competitive bidding for revenue maximization it would
have increase the prices of end products
like steel, power, cement
etc. and thus wouldn’t be in the interest of consumers. In a market
based system for determining prices this argument belies
economic logic as the prevailing prices of end
products are governed by demand and
supply situation and not essentially input costs. There is
no basis available to govt to claim that the private
companies who benefited out of
allocation of coal blocks have passed on the benefit to the consumers and the
claim can only be said to be based on hypothetical premises.
Moreover many private power
companies are operating as ‘Independent Power
Producers’ selling power in short term market at exorbitant prices of Rs 10-12
per unit. The Competition Commission of India
has in June, 2012 slapped
a fine of Rs 6,307 crore on 11 leading cement companies such as ACC, Ambuja
Cements, Ultratech and Jaypee Cements for price cartelisation. Such facts go contrary to the government’s logic that the supply of cheap
coal to sectors like cement and steel has benefited the end consumer.
Privatization of natural resources antithetical to
national interest
The
whole rational for not allowing privatization of ownership of natural resources
either through competitive bidding or captive route is based on the premise
that former method may succeed in recouping some loss to the national exchequer
(as CAG report points out) but it too fails to retain ownership of public at
large through the agency of government over the natural resources of the
country.
Even the CAG report fall short of pointing this out and anti-corruption
crusader ‘Team Anna’ though demanding cancellation of
licences and arguing for competitive bidding to transfer natural resources is also not
questioning the very rational of transferring natural resources from public to private
control inherent in any method of
privatization. The
government’s retaining control over coal reserves would have enabled it to determine
how and at what rate it should be exploited according to the requirement in any
given period. Handing over captive coal blocks for private benefit implies that they would produce at the
time when their ‘profit motive’ is best satisfied depending on the exigencies
of the market which is increasingly governed as per global situation under
contemporary times. This would be so even when the country is facing coal
shortage. Thus what is
to be challenged by any genuine anti-corruption movement is the very
rational of privatization of ownership of natural resources
as the emerging massive scams have their underlying
roots inherent in this process.
PM unconvincing arguments and ‘Zero
loss’
Prime Minister in his statement to the parliament argued that the
quantum of loss is disputable. Prime Minister and senior cabinet ministers
earlier too have attacked constitutional office of CAG basing them largely on
the argument that quantum of presumptive loss to national exchequer is
disputable or else the CAG is crossing his mandate by opining on policy issue. The double
speak of leaders of BJP, who are now pretending to be great defender of
constitutional authority of CAG, for scoring some political brownie points over
Congress, were equally culpable for undermining the authority of CAG when the
body exposed financial irregularities during NDA regime. About the
CAG report on the Centaur Hotel divestment in February 2004,Arun Shourie, then
minister for disinvestment, had said, “...the methodology of computing national
losses is idiotic, sorry peculiar”.
In 2001, when the CAG report on coffin purchases came out, Jaitley
had said,“The CAG is an institution appointed to find faults.” And then defence
minister George Fernandes had added that
“CAG has acted unethically” It is true that someone can argue on the
methodology adapted to measure loss to national exchequer but this doesn’t mean
there was no loss or undue gains to private parties as PM himself treaded
carefully not to use discredited ‘Zero Loss’ theory. But still to target CAG
report on this ground is basically indirectly questioning the very rational of
the audit itself. This is because the very nature of any audit is such that it
involves comparison with hypothetical desired situation to actual events
resulting in a situation where conclusions are necessarily based on some
reasonable presumption and available facts. Minister of Finance P. Chidambaram
though shamelessly argued earlier of ‘zero loss’ on account of the fact that
coal has not been mined till date. It would suffice to remind him about 2G scam
when supreme court intervened to cancel 122 spectrum licences which is now
being put on auction by the govt at the ‘reserved price’ which is more than
what has been utilized at that time by the CAG to calculate presumptive loss on
account of allocation of 2G licences. One can only hope that govt doesn’t wait
for the apex court to again intervene in the matter of captive coal block
allocation on lines of 2G judgement and respond to the popular demand of the
people of the country to cancel licence of captive coal blocks allotted in
non-transparent manner with immediate effect so that loss to the nation can be
restricted to ‘zero loss’ through recouping
already sustained losses from private beneficiaries. Thus cancellation of licences only seems to be the way out to upheld ‘Zero
loss’ theory and reasoning behind it as captive coal mines with private
companies would only result in coal being mined in some future time causing
loss to the nation even as per Chidambaram argument, if extended
logically to its conclusion!!
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