A] Objective of the report and way forward
Imports are increasing, power capacity is idling or operating at low rates, while
contribution envisaged owing to captive coal block allocation has been a clear let
down.
"Selection process" for allocation of coal blocks on captive mines have been raised
in parliament and some allocation are also being "contested" in different courts
in the country. While the initiative of coal block allocation on competitive bidding
was first taken up in 2004, the framework of the same was not decided till February
2012 (MoC declared framework for coal block auction on 2nd February 2012) and
thus, coal block allocation continued under "captive dispensation" route.
Audit objective is to ensure "objectivity" and "transparency" in the coal block
allocation and that the benefit of low coal cost is be passed on to the consumer.
Audit report submitted by CAG would be considered "final" once it is examined by
Parliament's Public Accounts Committee (PAC), constituted by leaders from several
political parties, for the auditing of the expenditure of the Government of India.
Currently, PAC is headed by Dr. Murli Manohar Joshi, a senior leader from Bhartiya
Janata Party (BJP). Chairman is appointed by the Speaker of Lok Sabha and chief
function of PAC is to examine the audit report of CAG after it is laid in the Parliament.
PAC is also working on 2G scam and had summoned to the various parties purported
to have benefited from the same last year, including eminent corporate leaders.
Thus, we would have to await clarification on the further course of action. Under
this, even CAG would be enquired on several claims/observation and if approved,
it would be forwarded to parliament for further debate/action.
B] Process of allocation of coal block was opaque, screening committee
had no objective assessment in place
In July 1992, MoC constituted "screening committee" but there was "no" clearly
spelt out criterion for allocation of mine and allotment was made to the applicant
who had produced only a letter of recommendation from the State government.
Minutes of screening committee meetings or any other document do not provide
any comparative evaluation of allottee for a particular captive block.
GoI constituted an expert committee (Dec 2005) headed by Mr. T L Shankar to
provide comprehensive roadmap to modernization of coal sector. Key
recommendation include specifying procedure for allocation of mines such that
it is transparent, excess production from captive mine to be sold to CIL/SCCL at
negotiated price, setting up a permanent special task force to monitor progress of
captive mines, etc. The recommendation were not affected in spirit.
C] MoC could have resorted to coal block auction in 2006, but persisted
with "old system"; loss to ex-chequer at INR 185,591cr
Government had decided to bring in the objectivity and transparency in the
allocation process with 28th June 2004 as cut-off date (prospective). Given the
lack of clarity on the framework (whether it is an administrative change or
amendment under the act is needed) under then prevailing Coal Mine
(Nationalization) Act, Mines and Minerals (Regulations and Development) Act,
1957 and Mineral Concession Rules, 1960, the view of Department of Legal Affairs
(DLA) was sought. DLA had in its report given in July 2006 made clear that the
decision on the course to be adopted was a matter of policy of Ministry of Coal
(MoC) itself. The same view was further vindicated in additional clarification sought
by MoC in August 2006. CAG is thus of the view that competitive bidding could
have been introduced since 2006 itself and thus, loss could have been arrested
through suitable framework.
Despite such a directive, the MoC took a "final" view that this calls for an
amendment to MMDR Act only by 2nd February, 2012 and continued to award coal
blocks under the earlier framework.
Between the period from 2004 to 2006, 71 more blocks were allotted by MoC, vs
only 39 blocks before 2004. Total of 75 private sector allottees were given captive
coal block. CAG has calculated the loss to ex-chequer excluding the UG mines (18
allottees) given lack of reliable data for cost/value of coal and UMPPs (12 coal
blocks), as also blocks allotted jointly with PSUs. Given this, 57 allottees were
given OC/mixed mines with 6.3b tons, where loss to ex-chequer is estimated
INR185,591cr. Working takes into account FSA realization of Coal India for various
grade, less cost of production for an open cast mine, and cost of interest.
CAG concludes its section on captive coal block allocation as "CAG is of strong
opinion that there is a need for strict regulatory and monitoring mechanism to
ensure that the benefit of cheaper coal is passed on to the consumers".
D] Performance of captive coal block is poor - negligence on monitoring/
administration by MoC
Total of 194 coal blocks (net off de-allocation of 24 blocks, gross allocation was 216
blocks) are allotted as at March 2011 with reserves of 44b tons. Out of 86 coal
blocks with target production of 73m tons in FY11, only 28 blocks started production
producing only 34m tons.
Taking cognizance of such delays, MoC later embarked on an exercise to review
the performance of coal blocks and de-allocated 24 coal blocks as at today. MoC
has in its defense put out that allottees who have not yet started the production
are in various stages of obtaining clearances and timeline for obtaining clearance
have been higher. To illustrate, the 24 months time given for exploration and 6
months for obtaining forest clearance are not found adequate and Coal India
takes more than 4 year for getting environment and forest clearance. CAG does
not agree with MoC on how can these slippage be legitimate, given that production
was envisaged taking sufficient time from pre-mining activity stage to production
stage.
Other lapses highlighted by CAG are:
1. Failure to increase drilling capacity for CMPDIL (Central Mine Planning & Design
Institute Limited) to only 3.44 lakh meter pa, vs expert committee
recommendation of 15 lakh meter pa.
2. Several of Coal India's de-allocated blocks (against Expert committee
recommendation) were given to other private parties, which has not been in
production, while balance few remains to be awarded. Amongst these, Coal
India had specifically asked/requested to not de-allocate few coal blocks,
where it had begin the development work.
3. Request by Coal India to allocate 138 coal blocks (originally in August 2008)
with reserve of 57.6b tons, which was later revised to 116 blocks (September
2011) with 50b tons is still awaiting approval from MoC.
4. CCO was responsible for monitoring the development of captive coal blocks.
CCO did not conduct any physical inspection of allotted coal blocks, due to
lack of staff strength. It is to be noted that 17 technical posts proposed by CCO
in 2007 was still under consideration by MoC. Lastly, CCO monitoring committee
was to review the progress of block on monthly basis, which was not strictly
followed and reviews were done only on quarterly basis.
5. Discrepancy in Bank Guarantee for performance of captive block development
/end use project and accounting of the same.
Key recommendations
1. In order to bring 'objectivity' and 'transparency' in the allocation and for tapping
of a part of benefit accruing to the allotteess of captive coal blocks, MOC should
urgently work out the modalities to implement the procedure of allocation of
coal blocks for captive mining through competitive bidding (already specified
now, highlighted below).
2. MOC should evolve a system of giving 'incentives' to encourage production
performance from captive coal blocks and 'disincentives' to discourage non/poor
performance.
3. There is a need to constitute an empowered group along the lines of Foreign
Investment Promotion Board (FIPB) as a single window mechanism with
representatives of Central nodal ministries and the State Governments to grant
the necessary clearances such as mining lease, mining plan, forest clearance,
environment management plan and land acquisition for accelerating the
procedures for commencement of production.
4. CCO should conduct physical inspection of allotted blocks on a regular basis
5. CIL should fix its production targets in line with the targets fixed by the Planning
Commission
6. CIL should synchronise its excavation and transportation capacities
7. CIL should expedite setting up of coal washeries as washing capacities of coal are
grossly inadequate in CIL subsidiaries in view of the fact that Indian coal contains
higher percentage of ash and washing of coal is of utmost significance, both for
the efficiencies in the user plants and from the point of view of environmental
concerns besides fetching higher returns.
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