Coalgate Is Unlikely To Go The 2G Way, Thankfully

To tell the commercial mining companies abroad (that breed doesn't exist in India except public sector National Mineral Development Corporation), what to expect as rules for extraction, the India government had formed a committee, under former central vigilance commissioner Pratyush Sinha.

The report of the committee has, however, turned on its head the entire premise of the coal verdict handed down by the Supreme Court in September 2014. The Sinha committee has held that in the handing out of the coal mines, the government should not be guided by the principle of revenue maximisation. Instead, the principle should be which companies can do the best job of mining coal under the parameters the state wishes to set out. Those parameters can include a host of objectives. The primary one is of course the deepest possible extraction of coal, but the ones in quick succession will be care for the environment, safety of operations, keeping costs of the coal extracted cheap, and so on.

The famous verdict by the Supreme Court in August and September 2014 in the clutch of coal cases was clearly predicated on the principle that the state had made a mistake in not maximising revenue. It held that the state held coal in the mines as one of its natural resources in a fiduciary capacity for the future generations. So extraction of coal by a company must be allowed only after it has paid the full up front price of the coal at prices comparable with what state-owned Coal India charged for its coal.

In other words, there should be auction of coal mines, the court ordered. Which is what followed. We shall revisit this theme in a moment. But now with the logic of the Sinha committee, can it be argued that the coal cases being investigated by the Central Bureau of Investigation (CBI) and other agencies, are much ado about nothing? For instance, would the 39 cases filed by the CBI against numerous companies and individuals, hold?

And, is there a scope for further cases emanating from the allotment of the coal mines to parties other than state-owned Coal India and Singareni Coal Collieries, made between 1993 and 2009? Moreover, there are several people who have already been sentenced by the CBI special court to various jail terms and also served monetary punishments. Do they get exonerated like they did in the 2G telecom cases?

My assessment is that the CBI cases, provided the government agencies retain the energy to pursue them, will continue. They would stand, unlike the telecom cases, because of the following reasons.

The coal cases follow a relatively simple path. Among the 214 coal blocks whose allocations the Supreme Court had cancelled, CBI and other investigative agencies picked up those cases where they deduced that money was paid in cash or in kind, to bag the allotments. There was a clear line of illegal behaviour. The cases are not about whether the state should or should not have asked for auctions before handing over the rights to mine those coal blocks.

This is an important differentiator for the coal cases with the 2G cases. In the telecom sector, the CBI had alleged a loss of Rs 30,984 crore to the exchequer made by the Department of Telecommunications in the allocation of the 122 licences. This was based on a Supreme Court order of February 2012. The CBI also alleged that the then telecom minister A Raja had received illegal gratification for favours shown by him to some of the operators, who got the licences. But in December last year, CBI Special Court Judge O P Saini held the charge-sheet did not hold water. Stretching the argument backward, it can be deduced the state had not erred in handing out the airwaves cheap. The culpability of the minister and his officers follow only if it is held that they should not have allotted the airwaves for a song.

The coal cases, however, stand on a different pedestal. There were clearly too many bidders for the mines. True, the blocks were being given away, free. If it was also the case that all the bidders could be allotted a block, then the cases do get diluted. It wasn't so. As I wrote in India’s Coal Story, in the year 2005, there were 728 applications in response to an advertisement for 20 blocks. Next year, there were 1,422 applicants for just 38 coal blocks. “There was a veritable rush to get a coal block”.

There were no rules to decide who would make the cut. The firms had to demonstrate two things to qualify for an allocation. One, they had to show that they needed the coal as fuel for their downstream steel, sponge iron, power, cement plant or even a washery (to this end, many applicants put up fictional plants). Two, their needs were unlikely to be fulfilled by Coal India or Singareni Collieries through coal linkages. In addition, since coal prices in the open market were rising at the same time as part of the global commodities boom, there was a clear incentive to rig the system.

So, while genuine parties played fair and square, several entities went about creating a fictitious end use or also resorted to old-fashioned bribes to swing the decision in their favour. Some of them did both. No matter how the Sinha committee verdict is interpreted by Minister for Coal, Piyush Goyal, these shenanigans are unlikely to pass muster as normal business practices.

In the CBI case diaries, the cases registered against such entrepreneurs can be broadly divided into two sets. The first pertains to the period, 1993 to 2005 and includes 45 coal blocks. The second is for allocations from 2005 to 2009, when the system of allocation of coal blocks was scrapped and includes 169 allotments. Together, there were the 214 allocations, which the Supreme Court had cancelled.

In January this year, the CBI informed the court that it had completed investigation into 22 of the 45 cases in the first set and held them as kosher. In the other 16 cases, the investigations are alive, which means prima facie, that cases have been filed against those allotments. But the CBI is still making heavy wind in bringing to a close the cases related to allotments made since 2005. This bunch is also more numerous. Since all of these cases are monitored by the Supreme Court, the agencies have to file periodic reports of how far the cases have progressed. They are taking time to wind through the Indian judicial system as a bench headed by Justice Madan Lokur has also noted.

Aside from these coal cases, there is the related issue of penalty, which every miner, state or privately owned, has had to pay to the government. The Sinha committee has clearly repudiated the principle of auction, going ahead. It instead asks for a two-stage bidding to select a miner for a coal block. Yet, it also does not ask the government to revisit the past decisions.

But, based on the principle set by the Sinha committee, one can argue that miners who have not been named by CBI had not erred in bagging the mines, free. In fact, it can be argued further that the penalty they all had to pay retrospectively might need to be revisited. If the objective of the state is not to enrich itself, there is no reason to ask a miner, to pay up for the amount of the coal in the block he held, whether it was extracted or not. The contract with the state only made him responsible to dig out coal efficiently from the mine he had been allotted and cart those to the intended beneficiaries. If he has done that, he has fulfilled his terms of the contract. But again, since the Sinha committee has not made retrospective suggestion, one suspects those penalties would stay.