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Last Updated : Jun 02, 2015 05:18 PM IST | Source:

Transparency in coal auctions linger despite govt rebuttal

The ministry rebuttal of 25 May 2015 says mining leases have been “wrongly” termed as permits. The government further claims that the Supreme Court did not “hand” over the cancelled coal blocks to Coal India Ltd.

The coal ministry has chosen to rebut my piece of 11 May 2015 by nitpicking over the use of the word “permits” for mining leases, while leaving the main charge - that the auction process was non-transparent – unaddressed.

The ministry rebuttal of 25 May 2015 says mining leases have been “wrongly” termed as permits. The government further claims that the Supreme Court did not “hand” over the cancelled coal blocks to Coal India Ltd.

In reality, mining leases are akin to “permits”, since both are grants that entitle firms to use and exploit the natural resource.


After concluding in its Order of 25 August 2014 that the “allotment of coal blocks was arbitrary and illegal", the Supreme Court cancelled the allotments only after securing the government’s assurance that “Coal India Limited (CIL) a public sector undertaking can take over and continue the extraction of coal...” This effectively means that CIL would “manage” the coal blocks as custodian to “ensure that coal production will not stop”.

This is further corroborated by the fact that CIL's internal correspondence alleges that being made custodian rather than owner of the mines was responsible for creating “confusion”, resulting in its failure to ensure continuous coal production in some mines.

The coal ministry doesn’t believe it took “needless credit” for the auctions. This is its counter: “the obvious question to ask is why did the earlier government not conduct any auction all these years?”

At the risk of repeating myself, after the MMRD Act was amended in 2010, making auctions mandatory, any coal block allocation to private companies could only have been made through auction and the United Progressive Alliance (UPA) government, which initially did its best to bypass auctions, was also forced to initiate the process in 2012-13.

This is evident from a coal ministry Notice of May 30, 2012 with the subject 'Identification of coal blocks for allocation and earmarking for various sectors - regarding'. The notice specifies in its notes, point (iv): "The coal blocks earmarked for allocation through tariff-based bidding and for allocation through auction by competitive bidding shall be allotted only after exploitation and preparation of Geological Reserves".

In effect, the coal ministry in 2014, too, had no choice but to hold auctions for the cancelled coal blocks, which it did. That does not make it a hero.

The coal ministry has gone to great lengths to prove the coal auctions were transparent without addressing the specific charges made in my piece. That the bids could be viewed publicly through a public screen is not under dispute.

Why were the list of applicants and full list of eligible bidders (not just the winning bids) never made public? How was the floor price for individual blocks determined? For coal blocks auctioned to power companies, how did the ministry derive the mining cost for each block? What is the end-use capacity, financial capacity and location of applicants and winning bidders plants?

The Rs 1.86 lakh crore Coalgate scandal was mainly about misrepresentation or concealment of such information which is adequately detailed in the CBI charge-sheets. Without this information being “transparently” placed in the public domain, it is impossible to ascertain if the technical and financial qualification of the bidders was indeed fair.

The information with respect to coal blocks in the "public domain" is, therefore, restricted to coal block summary reports, which in cases like Gare Palma 4/7 have been found to reflect incorrect/inconsistent data. Interestingly, SEML, the mine operator for Gare Palma 4/7, was disqualified from bidding for the mine by the ministry for the same reason - providing incorrect information with regard to its end-use plant.

Similarly, questions over the floor prices of the coal blocks for auction remain unanswered. How was the floor price of Meral, with no forest land and even some ‘A’ grade coal reserves, fixed at just Rs 725 per tonne and eventually sold at an escalation of just Rs 2 per tonne - Rs 727 per tonne - with the lowest number of bidders? Who were the other two bidders? When other bids were rejected by the coal ministry for being too low, why not Meral? These questions remain unanswered in the coal ministry’s rebuttal.

As for Gare Palma 4/7, it's still impossible to connect the dots. The coal ministry admits that the mine reserves were documented as having dropped from 156 million tonnes in 2012 to just 67 million tonnes in 2014, attributing this to coal extraction. As per the executive summary of the Gare Palma 4/7 block, a meagre 3.64 million tonnes of coal was extracted until 31 March 2014.

Since the peak rated capacity of the block as per its mining plan is 1.2 mtpa, this is the maximum additional coal that could have been extracted until 31 March 2015, leaving geological reserves of roughly 150 million tonnes rather than just 67 million tonnes as depicted in the mine summary report provided to bidders.

The coal ministry states: “And if anyone felt that the block contained additional reserves and better grades of coal, it should have been SEML, which was operating the mine. It should then have bid the highest. The assumption in the story that the block contained additional reserves and better grade coal thus falls flat. It needs to be pointed out that SEML was not selling any coal to "sponge iron and cement firms" but was using it for captive use. Most bidders for the mine also visited the mine and satisfied themselves of these parameters”.

But how could Sarda Energy & Minerals Ltd (SEML) - a sponge iron company that requires superior grade coal - have bid the highest for the block when it was disqualified from the bidding process by the ministry itself, a decision that was upheld by the Delhi High Court.

Also, though the coal ministry has "pointed out that SEML was not selling any coal to sponge iron and cement firms but was using it for captive use", evidence belies this claim. A letter of July 21, 2011 written by SEML to Under Secretary, Ministry of Coal, provides details of "tentative quantities of Middlings/Rejects proposed to be sold during the current financial year i.e. 2011-12" to "prospective end users", seeking "valued approval at the earliest".

Since this letter was part of the proceedings in the Coalgate matter in the Supreme Court and was never denied by the government, it is safe to conclude that SEML was selling middlings and rejects to other sponge iron and cement plants with the permission of the ministry.

Additionally, for the auction, the coal in the Gare Palma 4/7 block was graded by the ministry as 'G' - the most inferior grade, generating rejects and middlings which do not even classify as coal.

So how was SEML selling such inferior rejects and middlings to plants which can only use superior grade coal? Was the ministry grading for the auctions wrong? Rather than feigning ignorance, the ministry should be proactive and conduct an enquiry. So, the assumption in my story that the block does contain additional reserves and better grade coal does not fall flat.

Questions raised about the coal ministry's grounds for its own re-evaluation of bids on grounds of cartelisation and why they are not in the public domain also remain unaddressed.

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First Published on Jun 2, 2015 09:26 am
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