People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 35

September 02, 2012

Coal Scam: Wages of Privatisation


Prakash Karat


THE report of the Comptroller and Auditor General (CAG) on the allocation of coal blocks has revealed how chunks of the coal resources of the country have been handed over to private companies to enable them to make windfall profits.  According to the CAG, the allocation of captive coal blocks to private companies is likely to result in Rs 1.86 lakh crores financial gain for these companies.


The captive coal block allocations are part of the UPA government’s policy of facilitating the loot of natural resources by the big capitalists and corporates.  This is what has happened in the case of natural gas, land and spectrum allocation. 


The CAG report, of course, does not deal with the overall thrust of the successive governments at the centre since 1991 to privatise natural resources like coal.  It has conducted a performance audit covering the period 2006-07 to 2010-11 and the allocation of coal blocks by the ministry of coal from 2004 onwards.


In the case of coal, both the NDA and the UPA governments ran up against an obstacle.  The coal mines were nationalised in 1972-1973.  The Coal Mines (Nationalisation) Act was adopted in 1973.  Despite the best efforts of the Congress and BJP led governments, they could not succeed in amending the Act to allow entry of the private sector in coal mining.  The Coal Nationalisation Amendment Bill to allow private sector entry was introduced in parliament in 2000 by the NDA government.  But it has not been adopted yet.  The coal workers’ unions and the entire trade union movement in the country were resolutely opposed to the privatisation of coal mining.  There were a series of strikes by workers in the coal mines against the privatisation move.


It is in order to overcome this difficulty that the “captive mines” allocation route was devised.  In amendments to the main legislation in 1993 and 1996, companies engaged in power generation and cement production were permitted to have captive coal mines.  This was in addition to the already existing provision enacted in 1976 which allowed iron and steel producers to have captive coal mines for their use. 


The guidelines for allocation of captive mines had initially stated that allocations can be made to end users, i.e., steel or power producers. But this was diluted in 2006. Now, a mining company which has a contract to supply coal to an end user can be allocated coal blocks. 


It is in this way that the screening committee set up by the ministry has allocated coal blocks, many of whom are now found to have not mined the block, or sold it to another party.  Already the CBI is investigating some of the allocations and cases of fraud and other criminal charges are expected to be filed.


The handing over of captive coal blocks picked up momentum after 2000.   The main argument advanced for this was that the Coal India Ltd (CIL) and its subsidiaries are unable to meet the growing demand for coal for power generation and other purposes.  The bottlenecks due to the lag in meeting coal production targets were affecting the development of steel, cement and other allied industries. This was the pretext for systematically undermining and downgrading the public sector coal enterprises.  Instead of taking steps to streamline the CIL and set right the deficiencies and the corrupt and wasteful practices in the coal sector, both the Congress and the NDA governments worked to create a situation where the private sector would get entry and ascendancy in the coal sector.


The CAG report exposes the fallacy of the captive mining-privatisation route which was adopted. According to the report, in the Eleventh Plan period (upto 2010-11), 86 coal blocks were targeted to produce 73 million tones. Instead, only 28 blocks (of which only 15 blocks allocated to the private sector) produced 34.64 million tones during 2010-11.  This was a shortfall of 52.55 per cent of coal production from the captive coal blocks.  There are 68 blocks which have not begun production at all.


The captive mines policy had been actively utilised by the ministry of coal to weaken the CIL and prevent the expansion of public sector coal mining.  The ministry had, despite the objection of the CIL, de-reserved coal blocks under its purview; further the request of the CIL to the ministry of coal to allocate 116 blocks with 49,790 million tones of reserves for itself has not been cleared.  The CAG report notes that this will adversely affect the production plan of CIL.




The prime minister’s statement tabled in parliament is a brazen attempt to defend an indefensible policy. Under the prime minister’s watch and the two ministers of state in the coal ministry, concerted efforts were made to push ahead with this venal system of allocating coal blocks. As late as 2010, the PMO intervened to stop a ministry of coal directive which barred excess coal to be mined by the captive coal blocks and which stated that such excess coal should be handed over to CIL.  The PMO backed the companies that wanted to utilise the surplus coal mined.  (Another CAG report has indicted the government for allowing Reliance Power Ltd to use excess coal from the blocks allocated for Sasan power project.)  The UPA government and the Congress leadership cannot escape responsibility for this latest case of high level corruption.


The BJP’s hypocrisy in disrupting parliament demanding the prime minister’s resignation is breathtaking.  It had pioneered the captive coal block route. It had brought the coal privatisation bill in parliament.  The NDA government had deregulated coal pricing and taken a series of steps to weaken the CIL. The BJP state governments in Madhya Pradesh and Chattisgarh have followed the same pattern in handing over coal blocks to fraudulent companies. Both the Congress and the BJP have been engaged in the game of allowing big business to loot natural resources.


It is clear that the “captive mines” route of privatisation has led to selective allocations, violation of norms set by the ministry itself, transfer of the captive mines to other parties for quick gains and windfall profits for some companies. 


The outcry resulting from the CAG report has focused on the need for a system of competitive bidding to allocate coal blocks.  Competitive bidding  would be better than the present system if it is the question of eliminating corrupt practices and favouritism in the allocation of coal to private parties.  The main issue, however, is whether the coal industry is to be privatised or not.  As far as the CPI(M) is concerned, it is resolutely opposed to the privatisation of coal sector.  That is why it has been opposing the use of the captive coal block route to introduce private companies into the coal sector.  Coal is a fossil fuel and non-renewable natural resource.  Millions of domestic consumers and thousands of small and medium industries are dependent on coal as the main source of power and energy.  Coal has to be used, therefore, in a carefully planned manner in order to promote growth, sustainability and equity.  The State holds these reserves in public trust and it should not be viewed as a means of maximising revenue or enabling windfall profits for private companies. 


That is why mining of coal has to be done by the public sector. If private sector power and steel plants require coal, the allocation should be done through the nodal agency – the CIL.  Dedicated blocks can be provided for such enterprises with the mining done by the CIL and its subsidiaries.  In the states, state-run mining corporations can be involved in this process.  This should meet the requirements of power generation in the private sector, steel production etc.


India has the fourth largest coal reserves in the world.  Thermal power plants account for 55 per cent of the electricity generation capacity.  There is growing demand for coal in the economy.  For various reasons, the targets to augment coal production and power generation have not been met. In such a situation, instead of looking out for privatisation of the coal industry, the government should strengthen the public sector coal enterprises, upgrade the technology and ensure that enough coal washeries are set-up.




The competitive bidding, or, auction route for coal can create serious difficulties.  Competitive bidding would favour the large private players; it would lead to private monopolies and cartels forming.  Public utilities and state government-run corporations will not be able to compete.  Further, as the experience shows in the coal block allocation so far, it will not be possible to ensure the end-use provision.   Another aspect of the competitive bidding for coal will be pushing up the cost of power generation and the resultant pressure on the regulated tariffs in the power sector. 


The coal-bearing states have made the valid point that the interests of the states’ industrial development and energy needs can be met only if the state governments have a say in the allocation of coal blocks within their state. 


The stand taken by the Left Front government in West Bengal over a period of one and a half decades had the following components regarding the allocation of captive coal blocks.  Firstly, the state government should be involved in the allocation.  Secondly, no private party should be directly allocated coal blocks without taking into account the state’s opinion.  Thirdly, where coal blocks were allocated through the State dispensation route, the state mining corporation entered into a joint venture with the concerned steel or power company for mining the coal and for its disposal. 


The Left Front government’s reservations on going for an outright competitive bidding route has been distorted in sections of the rightwing  corporate media.  It has also been twisted by Arvind Kejriwal and company belonging to the India Against Corruption group.  What these forces want, knowingly or unknowingly, is the selling off of the coal assets of the country by competitive bidding which would usher in the privatisation of the coal industry.


The coal block scandal which has engulfed the Manmohan Singh government should be an opportunity not only to identify the perpetrators of the “loot the resources” policy but also to demand a reversal of the privatisation of natural and mineral resources. 


A high level investigation is required to fix responsibility for the irregularities and corruption involved in the coal block policy.  Those found guilty have to be prosecuted.  All allocations which have been made irregularly have to be cancelled.  In all the instances where windfall profits have been made, steps must be taken to recover the losses suffered by the government. 


While all these need to be done, the CPI(M) and all those who wish to see an end to the loot of natural resources will demand that the coal allocations and mining be done through the public sector in the future.