#India – Systematic diversion of community resources to the private sector #mustread

Pits of sleaze


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  • AT a mine in Chhattisgarh. Indiscriminate mining by cement plants here have resulted in the displacement of people in Adivasi areas.
  • Anil Ambani holds a jar containing the first coal from his Reliance Power's Sasan mines in Madhya Pradesh, in Mumbai on September 4, 2012. Critics say the government is subsidising private electricity discoms like Reliance and the Tatas and asking the poor to pay higher tariffs for electricity.
  • Coal-loaded wagons in Kolkata. The guidelines for allocating coal blocks were changed from time to time to facilitate increased participation of the private sector.
  • Aam Aadmi Party leaders outside the residence of Delhi Chief Minister Sheila Dikshit on April 28 with power bills collected from people.
  • Atal Bihari Vajpayee. As many as 32 coal blocks were allocated when he led the NDA government.

Systematic diversion of community resources to the private sector in the name of growing energy demands has been the trend since the advent of neoliberal policies, but the allocation of coal blocks by the UPA-II government was done in total violation of norms. By AJOY ASHIRWAD MAHAPRASHASTA in New Delhi

ON the face of it, the Parliamentary Standing Committee’s report on the allocation of coal blocks is a formal indictment of the United Progressive Alliance-II government, which not only failed to adhere to legal and bureaucratic procedures while allowing captive coal mining but also doled out mining licences selectively to incompetent and unprofessional companies. Firstly, the standing committee, headed by Trinamool Congress leader Kalyan Banerjee, says its report, called “Review of allotment, development and performance of coal/lignite blocks”, scrutinised the functioning of the screening committee and examined the guidelines for the allocation of coal blocks. Secondly, it pointed out that the monitoring mechanism and the review of coal blocks by an Inter-Ministerial Group had been far less than satisfactory.

Barely had the UPA-II government recovered from similar allegations in the 2G spectrum case when the standing committee report on coal blocks gifted the opposition yet another opportunity to shout down the government in Parliament on an issue that has been on the nation’s mind in the last one year: corruption. While the standing committee highlights the inadequacies of the UPA-II government in its report, it does not, however, link the bureaucratic malpractices with the neoliberal governance model that India adopted in the early 1990s and its structural malaise. Two trends are absolutely clear from the findings of the standing committee. One, a crony capitalist structure as a result of economic deregulation has firmly entrenched itself in the political ethos of India. Both the Congress and the Bharatiya Janata Party (BJP) are not just integral to this structure but have helped perpetuate it. Two, India has witnessed a systematic diversion of community resources like coal and other minerals to private hands, which have scant respect for either the environment or inclusive development. The diversion was justified by different governments since 1991 in the name of the growing energy demands of India. Both these trends are not mutually exclusive as can be inferred from the standing committee’s findings.

The standing committee points out that the Union government has abused its powers and handed out natural resources to a few “fortunate” companies, without following a transparent system. In the course of its investigation, it also found that some of the companies which had been allocated coal blocks were neither professional mining companies, nor did they have the expertise to conduct scientific mining. This is a clear violation of the guidelines for the allocation of coal blocks. In fact, the screening committee and the inter-ministerial group colluded to allocate illegitimate mining licences. Consequently, it has demanded an investigation into the decisions of the screening committees and recommended strong penal action against those involved in such an arbitrary process.

Systemic changes 

Such partisanship in governance is not just a consequence of institutional corruption. The systematic tweaking of laws and guidelines since the early 1990s points to the fact that such institutional corruption is an inevitable outcome of a larger economic model and a philosophy that advocates the withdrawal of the state from all processes of regulation. To understand this in the context of coal allocations, it is imperative to understand how the concept of captive mining came about and how it was facilitated by different governments.

With the advent of the private-sector-led economic growth model in the 1990s, the Coal Ministry declared that the production of coal should be doubled in 10 years to sustain the growing manufacturing sector. Since around 70 per cent of India’s power supply comes from coal, the Ministry estimated that a sustainable growth rate of 8 per cent over 10 years would require the production of 90,000 megawatts (MW) of thermal power. To reach this target, the Ministry planned to open 500 coal mines over the next 10 years in addition to the existing 600 mines.

To facilitate such massive production, the government decided to invite private companies to coal mining. This required amendments to the Coal Mines (Nationalisation) Act, 1973, which mandated that only government agencies can have access to the coal resources of the country. The standing committee quotes the Coal Ministry’s response in its report: “Under the Coal Mines (Nationalisation) Act, 1973, coal mining was exclusively reserved for the public sector. Coal India Ltd (CIL) and Singareni Coal Companies Ltd (SCCL) had the main responsibility of supplying coal to all end users. However, in the face of burgeoning demand, these companies were not able to meet the entire demand due to resource constraints, resulting in import of coal. This necessitated allotment of captive blocks to specified end users, mainly to augment availability and bridge the gap between demand and supply of coal. Captive blocks are allocated only in some specific priority sectors.”

Many energy analysts believe that allowing private players’ entry was a strategic failure in itself, and instead of taking the easy route, the government could have invested in government agencies to make them technologically equipped to handle high pressures. Moreover, what made the government believe that CIL was ill-equipped to handle the growing demand is a moot question. The government, at this point, conveniently forgot that coal mining had been nationalised precisely because private companies were not in a position to adequately increase the investment in their mines. The standing committee report says: “As adequate capital investment to meet the burgeoning energy needs of the country was not forthcoming from the private coal-mine owners, unscientific mining practices adopted by some of them and poor working conditions of labour in some of the private coal mines became matters of concern for the government. On account of these reasons, the Central government took a decision to nationalise the private coal mines.”

The amendment to the CMN Act came about in a conspicuously hurried way. In 1992, the Ministry of Coal stated that the amendment was a “matter of urgency” and initiated measures for the promulgation of an ordinance to amend the Act. However, the Law Ministry disapproved it. Hence an amendment Bill was passed in July 1992 in the Rajya Sabha but was held up in the Lok Sabha. This time, citing its urgency, the government promulgated an ordinance in January 1993, which the Law Ministry approved. Finally, the Bill was approved by the Lok Sabha in April 1993. The amendments to the CMN Act allowed private sector participation in coal mining operations for captive consumption towards generation of power and “other end uses” which may be notified from time to time.

However, after a fierce debate the government allowed for some regulatory guidelines, which, the standing committee points out, were openly violated. The guidelines laid down certain principles for allocating coal blocks, in order to protect government agencies and prevent private companies from operating unsystematically. It said: “A) The blocks in greenfield areas where basic infrastructure like road, rail links and power lines are not immediately available should only be given to private sector. The areas where CIL has already invested in creating such infrastructures for opening new mines should not be handed over to the private sector. B) The blocks offered to private sector should be away from the existing mines and projects of CIL. C) Blocks already identified for development by CIL should not be offered to the private sector. D) Private sector should be asked to bear the full cost of exploration in these blocks which will be offered to them.”

However, most of the coal blocks allocated throughout India were not in greenfield areas but in populated areas. It is because of such high-handedness in coal allocation that both government and private companies have consistently faced resistance in times of land acquisition. The standing committee found that not only were many coal blocks of CIL diverted to private companies but that this happened where CIL had already developed enough infrastructure for mining. Many coal blocks were allocated by diverting lands of reserved forests. The “no-go zones”, meant to protect the forests, were hurriedly converted to “go zones” to open up private mining in the forests. The most pertinent example of such allocations is in Chhattisgarh, where private coal mining has mushroomed around Central Coalfields Ltd, a holding company of CIL (“Mining Tussle”, Frontline, July 16, 2010).

Expansion of end use 

The amended Act allowed the private sector to meet the growing demands of energy. However, a vague description of “end use” allowed the government to permit coal mining for industries ranging from iron and steel to cement. The standing committee notes that the production of cement was included as an approved end-use for the purpose of captive mining of coal in 1996. Therefore, cement-producing companies also became eligible to undertake coal mining for captive consumption, instead of buying coal from the market. Indiscriminate mining by cement plants in Chhattisgarh has resulted in chaos and large-scale displacement of people in Adivasi areas (“Standing up to the state”, Frontline, June 17, 2011).

Guidelines were also changed from time to time to facilitate increased participation of the private sector. The standing committee notes: “The Ministry has informed the committee that guidelines were first framed in 1993. Thereafter consolidated guidelines were framed and adopted in 2003. The guidelines were further modified in 2005 and in 2006. In 2005, the Expert Committee on Coal Sector Reforms provided recommendation on improving the allocation process, and in 2010, the Mines and Minerals (Development and Regulation) Amendment Act was enacted, providing for coal blocks to be sold through competitive bidding.”

A detailed report compiled in 2008 by the New Delhi-based Centre for Science and Environment, which gives the scale of ecological damage done by such indiscriminate mining, notes: “Every major legislative and regulatory change that has happened in the last 14 years in India in the mining and minerals industry has been done in the name of the National Mineral Policy (NMP) (1993). The mining sector has been opened up for private investments, foreign direct investment has been allowed and regulations have been relaxed (by the NMP).”

NDA’s active involvement 

Initially, facilitation of the private sector’s entry into mining came from the Congress party. And despite its vocal criticisms against the UPA-II in the matter of coal allocations, the record of the National Democratic Alliance (NDA) is no good. In fact, it can be held equally culpable. The list of NDA’s achievements on the BJP’s website proudly declares that it introduced the most significant energy scheme in India’s history. The scheme was more of a vision called “Power to all by 2012”. The standing committee notes: “The production of coal assumed a greater significance after 2003 when Government of India pronounced a mission ‘power to all by 2012’. Accordingly, the GOI envisaged capacity addition of 1,00,000 MW of power by 2012 and in order to meet this increased capacity, corresponding increase in the coal production was required in X-XI Plan periods (2002-12).”

In fact, Atal Bihari Vajpayee’s government made coal allocation in a much greater way than the Congress had done before. As many as 218 coal blocks were allocated from 1993 to 2010. While only five and four blocks respectively were allocated under Prime Ministers P.V. Narasimha Rao and H.D. Deve Gowda, Vajpayee took an unguarded approach while allocating coal blocks. Thirty-two blocks were allocated during the NDA government. The Congress, of course, took this rash approach further by allocating 175 coal blocks from 2004 to 2010.

Along with the “Power to all by 2012”, the NDA regime passed the New Electricity Act, 2003, with the stated objective of helping electrify rural areas. But not so public is the fact that the power sector was deregulated and private players were allowed to generate and supply electricity. This facilitated the entry of private companies into power generation, which required thermal power. The NDA regime provided extraordinary facilities to the new players and at the same time disinvested in public sector power plants. Coal blocks were allocated to power companies, cement plants, steel factories, and so on, within the same region so that they could dig out coal for their primary businesses at a minimum cost of transportation. This meant that many companies were allocated mining licences without having any expertise in it. It worked like this: a company chooses a “coal block” and submits an application to the Ministry to mine there, in a process called “linkage”, and the Coal Ministry allocates mining rights to the company after getting an environmental clearance from the Ministry of Environment and Forests.

The Ministry of Coal told the standing committee that there were three ways of allocating coal blocks. The first method was called “captive dispensation through screening committee”, where most of the violations of guidelines happened. The standing committee notes that the screening committee allocated coal blocks in a highly opaque manner. It has also pointed out various instances of the inter-ministerial group interfering in the screening process to allocate coal blocks to a few companies. Who can forget the instance of the Delhi-based Pushp Steel, which got a mining lease in Chhattisgarh for only Rs.1,00,000, with no experience or capital, both prerequisites for allocation?

The second method was “government company dispensation”, in which coal blocks were allocated to government agencies. The standing committee has highlighted various instances where CIL allowed private companies to mine in its coal blocks. The third was “tariff based competitive bidding”, where coal blocks were auctioned.

Auctioning of community resources like coal, in the last 15 years, has led to a speculative rise in the prices of coal. “Speculative rise in coal prices has led to multiplier effects on common people. Increased tariff of electricity and price rise in most products in the market are a result of this. Instead of such auctioning, if the energy sector, which I consider a very crucial sector, had remained in the hands of public-sector units, common people would not have experienced such a steep price rise in the last few years. Today, the situation is ironical. The government is subsidising private electricity discoms like Reliance and Tatas, and the poor are being asked to pay higher tariffs for electricity,” Ashok Rao, president of the National Confederation of Officers’ Associations (NCOA) of Central Public Sector Enterprises, told Frontline.

Policy changes are made to ensure inclusive and real development. However, a hasty change in the economic approach since the 1990s entailed that the government showed an extraordinary willingness to stop all forms of regulation and still retain its power to control economic processes. This is a sordid mix, the outcome of which can be nothing but scams such as this one. The standing committee notes: “218 coal blocks allocated with geological reserves of about 50 billion tonnes have been allocated to eligible public and private companies under the Coal Mines (Nationalisation) Act, 1973. Out of that, 25 coal blocks have been de-allocated. Out of de-allocated coal blocks, two coal blocks were re-allocated to eligible companies under the said Act. Thus, the net allocated blocks are 195 coal blocks with geological reserves (GR) of about 44.23 billion tonnes…. Out of 195 coal blocks allocated so far for captive mining, 30 blocks have started coal production and out of 160 captive coal blocks allocated during 2004 to 2008, only two have started production.” The standing committee also notes with shock that no revenue was accrued to the government from the allocations and recommends that all allocations from 1993 to 2011 be investigated.

Such dubious record puts a question mark over not only the efficiency of new policies but also on the unholy government-industry partnership which promotes such policies. “The arbitrary distribution of mining licences has led to the emergence of a secondary market. The companies get mining licences but resell them to other players, completely disregarding the end-use for which they had got the licence in the first place,” said Nilotpal Basu of the Communist Party of India (Marxist).

Among the five companies raided by the Central Bureau of Investigation was the Hyderabad-based Navbharat Power. This company was allotted two coal blocks in Odisha in 2008, but it sold them to Essar for Rs.230 crore a year later without developing the block. The guidelines place no restrictions on such reselling. Companies have applied for coal blocks without any experience and expertise so that they could sell them for hefty amounts.

Mining leases have become a property realtor’s dream. The standing committee report and the disastrous experience with captive mining surely mandate the need for a re-authoring of policies to stop the transfer of valuable community resources to the private sector. It has been established through a series of scams that the private sector is not as efficient as it claims to be.



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