Is the government undermining its own Coal Mines Act for the profit of private companies?

03 October 2018
A lack of government scrutiny has enabled private companies to enter India's coal industry and effectively replace the joint-venture model that the Supreme Court struck down as illegal in a landmark 2014 judgment.
Daniel Berehulak/Getty Images

In his campaign for the 2014 Lok Sabha elections, Narendra Modi promised to introduce reforms in the coal industry as a crucial part of his development agenda. In September that year, the Supreme Court passed a landmark verdict cancelling nearly all existing permissions for the captive mining of coal blocks. The verdict halted what had come to be known as the Coalgate scam—one of the biggest scandals that contributed to the fall of the United Progressive Alliance government. The court censured the government of India and its public-sector companies for forming joint ventures with private companies, which allowed the latter to pocket benefits of mining the allotted coal for free. It stated: “[It] is expected that the Government will not deal with the natural resources that belong to the country as if they belong to a few individuals who can fritter them away at their sweet will.” In total, 214 coal block allocations were nullified, including all joint ventures.

The 2014 Supreme Court verdict set the ground for fresh legislation and reform in the coal industry. The next year, the National Democratic Alliance enacted two key legislations to introduce these changes—the Coal Mines (Special Provision) Act and the Mines and Minerals Development Regulation Act. The coal ministry’s press statement boasted that the year would be written in “golden letters in the annals of history.” The Coal Mines Act stipulated that the blocks that had earlier had their allotments cancelled would now be distributed either through auctions to private and public firms, or through direct allotment to public-sector companies.

Three years since the Coal Mines Act was introduced, its implementation hangs under a serious cloud. Documents obtained through right-to-information applications reveal that the coal ministry does not possess copies of current agreements between public-sector undertaking and their private partners. This lack of government scrutiny has led to a prevailing practice that effectively replicates the joint-venture model that the Supreme Court struck down as illegal. As a result, the profiteering by private firms continues unabated in the coal sector due to ineffective implementation of the 2014 judgement and subsequent law.

Since the introduction of the Coal Mines Act, approximately 27 percent of the total coal blocks were allocated through the auction route while close to 84 percent of the total estimated coal reserves were directly allocated to public-sector companies. In case of the auctioned coal blocks, after the first two rounds of auctions Prime Minister Narendra Modi had said that the “fetching of over Rs 2 lakh crore from auction of just 33 coal blocks has shown that policy-driven governance can rid the system of corruption.” However, according to an August 2018 report of a parliamentary standing committee on coal and steel, the revenue generated from coal auctions during the current government’s tenure stood at Rs 5,399 crore as of April this year. A Business Standard report published the next month calculated the revenue generated till June to be Rs 5,684 crore—just 3 percent of what Modi claimed.

Among the public-sector undertakings that were allocated coal blocks, most of them appointed private companies as “mine developer cum operators,” or MDOs, which are responsible for, among others aspects, developing, maintaining and operating the mine. Such agreements between PSUs and MDOs are not subject to any oversight from the centre or coal ministry, and private companies refuse to disclose the terms of their agreements. This lack of transparency is in complete contravention of the Supreme Court’s 2014 judgment and the legislation that followed it.

Nileena MS is a reporting fellow with The Caravan. 

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