The crony capitalism of coal allocations is continuing under this government: Sudiep Shrivastava

Shahid Tantray for The Caravan
02 October, 2018

In a landmark judgment in September 2014, the Supreme Court declared that the procedure of allocating coal blocks since 1993 was arbitrary and illegal. The verdict gave impetus to the enactment of the Coal Mines (Special Provisions) Act of 2015, which introduced a transparent procedure for block allocations, by giving more power to the public-sector undertakings that were allotted coal blocks, and in turn, ensuring easier regulation of these mines. Among other reforms, the 2015 act limited the role of private companies developing mines with PSUs to that of a “contractor,” which is paid a minimal fee for mining and transportation. However, the prevailing practice has seen this limitation upended with the participation of “mine developer cum operators”—private companies that work with the PSUs and operate in violation of the Supreme Court verdict and subsequent legislative reform.

Sudiep Shrivastava, a Chhattisgarh-based lawyer and activist, was one of the petitioners in the case before the Supreme Court. In the lead up to the 2014 judgment, Shrivastava had also raised allegations of illegalities with respect to the environmental clearances received during the allotment processes. In March 2012, a joint venture between Rajasthan Rajya Vidyut Utpadan Nigam Limited, a power corporation of the Rajasthan government, and Adani Enterprises Limited, the flagship company of the Adani Group, was given the permission to raze forests to run a captive coal block situated at the biodiversity hotspot Hasdeo Arand forest, in Chhattisgarh. Soon afterwards, Shrivastava approached the National Green Tribunal to challenge the forest clearance given to them.

Shrivastava takes up public-interest cases, ranging from violation of environmental laws in mining and industrial projects to political scams. Over a series of conversations, he discussed the impact of the coal scam and subsequent changes in the country’s coal mining policy with Nileena MS, a reporting fellow at The Caravan. According to Shrivastava, the allocation of coal blocks under the BJP-led government is no better than what it was under the Congress-led government. “PSUs are entering into ‘Mine Development Operators’ agreements with private companies in such a manner that the private company is operating the mine,” he said. “Selection of a private ‘contractor’ by PSUs smacks of corruption and nepotism.”

Nileena MS: What impact did the Supreme Court’s 2014 judgment and subsequent legislations to regulate coal mining have on the coal sector in India?

Sudiep Shrivastava: The deallocation of coal blocks has not brought the coal production in the country to a halt. As I had stated in my intervention petition in the coal case, the production from these private mines was less than ten percent of the coal production in India—only 46 million out of 550–600 million at that time. It was never going to have such an effect.

[The Coal Mines Act] has brought a level-playing field among power producers. Certain power generators with coal blocks, like the Jindal Group, were getting coal at a throw-away price whereas other power producers were buying coal from Coal India. This has changed. But the way the government conducted auctions and allocated coal blocks to state PSUs directly is very problematic. The mines allocated to state PSUs have ultimately ended up in the hands of private players.

NMS: Among the 204 that were declared illegal in 2014, eighty-nine blocks have been reallocated. Could you comment on the reallocation process?

SS: The first priority was to stabilise coal supply. Former attorney general Mukul Rohatgi had promised the Supreme Court, during coal case hearing in 2014, that the central government’s Coal India was capable of handling the mines that were, at that time, mined by private companies. However, in a hurry to showcase its success, the government went ahead to auction these mines which were under production at that time.

Mines under production, which were opened up by various private players, ought not have been auctioned. These mines should have been taken over by Coal India and the focus should have been on stabilising coal supply, like the government handled nationalisation of coal mines in 1973—all the mines under production were taken over by the government, Coal India was formed and it maintained the supply.

In this case, six months after the judgment—till March 2015—private players who were the original allottees [of coal blocks] were allowed to continue mining. Within a month, these mines were auctioned and reallocated to others. In many cases, the auctions witnessed high rates, and that was the result of the desperation among private players to retain those mines. Later, some of them realized that such rates are not feasible in the current situation. There were other issues like litigation. Half of the 40 mines that were under production before deallocation are not in production now because of one issue or the other. All the mines owned by state PSUs were reallocated without any auction and such mines are either ending up with same private partner MDOs or out of production.

It would have been better if a new set of mines were auctioned to private companies. The government should not have hurried, but waited for the market to stabilise to hold the auctions to attain more realistic rates and a proper road map for the coal industry.

NMS: Has the Coal Mines Act of 2015 been effective in addressing the irregularities that resulted in the coal scam?

SS: The crony capitalism that earlier functioned through coal allocations to private parties, without verifying the existence of an end-use plant [a coal-based plant that specifies how the coal produced would be used at the outset] or the required financial capability, is continuing in another form under this government.

Take the case of Parsa East and Kente Basan. It was earlier allotted to the RRVUNL and after the judgment, reallocated to the same PSU. [AEL had a 74 percent stake in the joint venture with RRVUNL.] They are continuing their old mining agreement dated 16 July 2008 with the Adani Group, which ought to have been scrapped as per the Supreme Court judgment.

This is not just contrary to the judgment, but also the new act. The practice is to allot old blocks to state PSUs, and to further allow these PSUs to enter into Mine Development and Operator agreements with private companies in such manner that the private company is operating the mine. It is privatisation without any auction.

The 2014 judgment said that state PSUs were not allowed to mine, but the new amendment to the Coal Mines Act enabled them to mine coal without any auction. These blocks are ending up in the hands of private companies in the same manner as before.

The so-called tender [or] selection process of the private “contractor” by PSUs smacks of corruption and nepotism. So, what has changed?

NMS: What do you think of the ongoing investigation by the Central Bureau of Investigation into the coal scam?

SS: There are three major discrepancies with the way the investigation is being conducted.

First, out of 214 coal block allocations scrapped by the SC, only 40–45 FIRs have been registered in the case of 35 odd blocks. There are at least 50 more cases of misrepresentation of facts and false claims by private companies that are apparent on the record. The CBI is yet to register FIR in these cases. There was even an insider note from the CBI which said that CBI has registered FIR in some companies, but similar evidence against certain other companies are ignored. For example, the CBI had registered a case against EMTA Coal Mines Ltd and Karnataka Power Corporation Ltd, a PSU, [which formed a joint venture company,] when it found that the private company was illegally selling coal rejects in the open market [in contravention of the amended Coal Mines Act].  Similar discrepancies are found in the RRVUNL’s PEKB mine developed by the Adani Group, but there is no FIR in this case yet. Companies like Jindal are booked, but similar cases involving other powerful corporate groups are not pursued.

Second, role of the state government officials who scrutinised the applications and clearances for coal block allocations is not properly examined. Many of the coal mines are in BJP-ruled states. That is one reason why the BJP do not want to proceed with examining state's role. The coal ministry was acting on the advice of the screening committee—barring very few cases—comprising of the secretaries of coal, power, steel and heavy industries ministries depending on the end-use project that the mine was tied to. None of them [screening committee members] were questioned or booked, even though they had appraised and recommended applications for coal blocks that were later found to be illegal by the SC.

Third, hardly any MDOs agreements signed by state PSUs are examined. The CBI has not looked at all the allocations properly. If there are only around 40-odd cases out of the 214 coal block allocations, this would mean that it was not a scam of the extent it was made out to be. This has to be thoroughly investigated.

The BJP has gained political mileage out of the coal scam, and after coming to power they don’t show any interest in taking the investigation forward.

NMS: Only 31 blocks are allocated through auction. But according to the central government the auction was a huge success. What do you think of this?

SS: Earlier, there was at least 46 million tonnes production per annum, substantial portion of which were coming from mines allotted to PSU. Now most of these blocks are reallotted to the same PSUs without auction. So, where is the question of revenue from auction in the case of these mines? This “earning revenue of two lakh crore from coal auctions is nothing but a jhumla again. Let the government bring out a white paper on revenue gain from auctions; I would like to ask how much production have these auctioned coal mines generated including mineral fund, state fund, and royalty. [According to a September report in the Business Standard, as of June this year, the revenue generated was Rs 5,684 crore.]

NMS:  The Coal Mines Act of 2015 allows only mining contractors, but the state PSUs continue to enter into mine development agreements with private partners, known as Mine Development Operators in this scenario. Are contractors different from operators?

SS: How can an act which was brought to implement the SC judgment allow such MDOs that are contrary to the judgment itself? The act only permits mining contractor, there is no mention of a MDO. An MDO’s scope of work is much larger than a contractor—it is even empowered to acquire land on PSUs behalf. Is there any other instance where a contractor is assigned so many things for a long period on irrevocable terms? It is an uphill task for PSUs to get out of these MDO agreements. [The agreements are generally coterminous with the life of the mine, which makes it tough for the PSUs to change the MDO.]

The problem with the tender process for appointing an MDO is that it is not being done to meet the cost of mining. It is being done for the entire model where the bidder [MDO] has to acquire the land, secure clearances, invest money for mining, mine and sell the coal to the original owner [PSU].  In most of these cases, the owner of the block [PSU] is actually buying its own coal at a price higher than that charged by Coal India. Instead of “coal sales” they are saying “supply”, but it is actually sale.

The coal rejects, around 22–35 percent per each tonne of coal mined, belong to the PSU. This is also given away to the private party. The entire model is nothing but a farce, and it is actually transfer of the coal block to a private company without any auction. [Private companies should be allotted blocks only through auctions as per the law]

What is the benefit of giving the block to a PSU? It is a new scam! According to these [MDO] policies, the private companies need not invest a single rupee in any end-use project—it is the job of the PSU. The entire benefit arising out of mining, was supposed to go to the PSU and ultimately to the public in the form of low electricity tariffs. This entire benefit is now pocketed by the private company. One just can't think about a worse business model of mining.

NMS: Why have the regulatory and auditing bodies such as the Central Electricity Regulatory Commission and Comptroller and Auditor General not raised these issues?

SS: The electricity regulatory commission seems to be acting in the interest of private companies. Even the CAG in its controversial report on coal allocation in 2012 took a decision to bring down the loss to the public exchequer to Rs 1.86 lakh crore from its earlier estimation of Rs 10.7 lakh crore in a draft report. In the draft report, it had calculated the loss from all coal blocks including the 77 allotted to state PSUs. But blocks of state PSUs were dropped in the final report, even though the real scam was happening in these blocks. The CAG’s logic was that the state unit of the CAG would audit the state PSUs. If different states are going to analyse deals entered by different state PSUs, then you won’t get any cumulative figure.

The Chhattisgarh CAG had calculated a loss of Rs 1,052 crore in the Bhatgaon and Bhatgaon extension for which the MDO was SMS infrastructure, and Rs 1,503 crore inthe Parsa mine of Chhattisgarh State Electricity Board operated by the Adani group. Even in these cases, the original role of MDO was not scrutinised properly. The loss was assessed merely on the price difference [between prices notified by Coal India Limited and that supplied by the MDO]. Had it been done by considering the actual cost of mining and the final price paid by the PSUs to buy its own coal, then the loss would have been more than Rs.5,000 core in both the cases.

NMS: Complaints of violation of environmental laws and forest rights in coal mining projects are frequently reported. Has the government addressed these issues while reallocating coal blocks?

SS: The government has missed a major opportunity to do so. In February 2011, the ministry of environment, forest and climate change, after considering the biodiversity and forest coverage of coal blocks said that 8.11 of potential coal bearing areas and 11.5 percent explored coal bearing areas should be ‘no-go’ areas. The ministry said that these coal blocks should be kept for emergency purposes. It also noted that opening up these pristine forest areas would prevent research and development in expanding existing mines and improving techniques of underground mining. This entire exercise was done by ministry of coal and MOEFC under the UPA government. The MOC and Prime Minister’s Office initially agreed on this, but then vested interests started playing games. MOC and PMO backtracked and the entire process was stalled. Then, the government announced that they would formulate a “violate-inviolate [forests]” policy which would consider biodiversity aspects apart from hydrological parameters to allow coal mining projects. [However, this was not adopted.]

When the SC scrapped all coal block allocations, in 2014, the BJP government got a major opportunity to adopt this [“no-go areas”] as a benchmark for allocation of coal block. This would have safe guarded some important forest and biodiversity rich areas from mining by simply not allocating them. Once allocated, third party interests would influence these decisions. At least 10–15 percent of coal reserves should have been notified as no mining areas. Instead of doing so, the government started auctioning and allocating many blocks which fall in rich biodiversity regions.

The absence of data on hydrological layer was cited as the reason for finalising this policy. Despite projects to protect rivers, like Namami Gange and Namami Devi Narmade Sewa Yatra, we are not developing hydrological layers and identifying areas crucial for catchment of rivers, but just allocating these areas for mining. The 20 coal blocks in the Hasdeo Arand region fell in ‘no-go’ areas as they lie in the catchment area of Hasdeo river—a major tributary of Mahanadi. Mining in these blocks will have tremendous consequences in 20–25 years.

Interestingly, one of the major beneficiaries of this decision is Adani Enterprises. It is again allowed to mine three coal blocks in the region—Paras East and Kanta Basan, Parsa, and Kete Extension blocks—through RRVUNL.  The government has lost a major opportunity to identify areas where mining should be done and should not be done.

This interview has been edited and condensed.