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 inter-Ministerial 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
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
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
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
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
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.
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.
32. This, in short, is the background, the factual position and the
rationale of government’s actions. Now that the report of the CAG is
before the House, appropriate action on the recommendations and
observations contained in the report will follow through the established