New Delhi: Prime
Minister Manmohan Singh Monday made a statement in both houses of
parliament on coal block allocation for which the opposition is
asking for his resignation as it was made during his tenure as
Following is the text of the statement:
I seek the indulgence of the House to make a statement on issues
regarding coal block allocations which have been the subject of
much discussion in the press and on which several honourable
members have also expressed concern.
2. The issues arise from a report of the Comptroller and Auditor
General (CAG) which has been tabled in Parliament and remitted to
the Public Accounts Committee. CAG reports are normally discussed
in detail in the Public Accounts Committee (PAC), when the
Ministry concerned responds to the issues raised. The PAC then
submits its report to the Speaker and that Report is then
discussed in Parliament.
3. I seek your indulgence to depart from this established
procedure because of the nature of the allegations that are being
made and because I was holding the charge of Coal Minister for a
part of the time covered by the report. I want to assure
honourable members that as the minister in charge, I take full
responsibility for the decisions of the Ministry. I wish to say
that any allegations of impropriety are without basis and
unsupported by the facts.
4. Allocation of coal blocks to private companies for captive use
commenced in 1993, after the Coal Mines (Nationalisation) Act,
1973 was amended. This was done with the objective of attracting
private investments in specified end uses. As the economy grew in
size, the demand for coal also grew and it became evident that
Coal India Ltd. alone would not be able to meet the growing
5. Since 1993, allocation of captive coal blocks was being done on
the basis of recommendations made by an inter-ministerial
Screening Committee which also had representatives of State
governments. Taking into account the increasing number of
applicants for coal block allocation, the Government, in 2003,
evolved a consolidated set of guidelines to ensure transparency
and consistency in allocation.
6. In the wake of rapidly growing demand for coal and captive coal
blocks, it was the UPA I Government which, for the first time,
conceived the idea of making allocations through the competitive
bidding route in June 2004.
7. The CAG report is critical of the allocations mainly on three
counts. Firstly, it states that the Screening Committee did not
follow a transparent and objective method while making
recommendations for allocation of coal blocks.
8. Secondly, it observes that competitive bidding could have been
introduced in 2006 by amending the administrative instructions in
vogue instead of going through a prolonged legal examination of
the issue which delayed the decision making process.
9. Finally, the report mentions that the delay in introduction of
competitive bidding rendered the existing process beneficial to a
large number of private companies. According to the assumptions
and computations made by the CAG, there is a financial gain of
about Rs. 1.86 lakh crore to private parties.
10. The observations of the CAG are clearly disputable.
11. The policy of allocation of coal blocks to private parties,
which the CAG has criticised, was not a new policy introduced by
the UPA. The policy has existed since 1993 and previous
Governments also allocated coal blocks in precisely the manner
that the CAG has now criticised.
12. The UPA made improvements in the procedure in 2005 by inviting
applications through open advertisements after providing details
of the coal blocks on offer along with the guidelines and the
conditions of allotment. These applications were examined and
evaluated by a broad based Steering Committee with representatives
from state governments, related ministries of the central
government and the coal companies. The applications were assessed
on parameters such as the techno economic feasibility of the end
use project, status of preparedness to set up the end use project,
past track record in execution of projects, financial and
technical capabilities of the applicant companies, recommendations
of the state governments and the administrative ministry
13. Any administrative allocation procedure involves some judgment
and in this case the judgment was that of the many participants in
the Screening Committee acting collectively. There were then no
allegations of impropriety in the functioning of the Committee.
14. The CAG says that competitive bidding could have been
introduced in 2006 by amending the existing administrative
instructions. This premise of the CAG is flawed.
15. The observation of the CAG that the process of competitive
bidding could have been introduced by amending the administrative
instructions is based on the opinion expressed by the Department
of Legal Affairs in July and August 2006. However, the CAG's
observation is based on a selective reading of the opinions given
by the Department of Legal Affairs.
16. Initially, the Government had initiated a proposal to
introduce competitive bidding by formulating appropriate rules.
This matter was referred to the Department of Legal Affairs, which
initially opined that amendment to the Coal Mines (Nationalisation)
Act would be necessary for this purpose.
17. A meeting was convened in the PMO on 25 July 2005 which was
attended by representatives of coal and lignite bearing states. In
the meeting the representatives of state governments were opposed
to the proposed switch over to competitive bidding. It was further
noted that the legislative changes that would be required for the
proposed change would require considerable time and the process of
allocation of coal blocks for captive mining could not be kept in
abeyance for so long given the pressing demand for coal.
Therefore, it was decided in this meeting to continue with the
allocation of coal blocks through the extant Screening Committee
procedure till the new competitive bidding procedure became
operational. This was a collective decision of the centre and the
state governments concerned.
18. It was only in August 2006 that the Department of Legal
Affairs opined that competitive bidding could be introduced
through administrative instructions. However, the same Department
also opined that legislative amendments would be required for
placing the proposed process on a sound legal footing. In a
meeting held in September, 2006, Secretary, Department of Legal
Affairs categorically opined that having regard to the nature and
scope of the relevant legislation, it would be most appropriate to
achieve the objective through amendment to the Mines & Minerals
(Development & Regulation) Act.
19. In any case, in a democracy, it is difficult to accept the
notion that a decision of the Government to seek legislative
amendment to implement a change in policy should come for adverse
audit scrutiny. The issue was contentious and the proposed change
to competitive bidding required consensus building among various
stakeholders with divergent views, which is inherent in the
20. As stated above, major coal and lignite bearing states like
West Bengal, Chhattisgarh, Jharkhand, Orissa and Rajasthan that
were ruled by opposition parties, were strongly opposed to a
switch over to the process of competitive bidding as they felt
that it would increase the cost of coal, adversely impact value
addition and development of industries in their areas and would
dilute their prerogative in the selection of lessees.
21. The then chief minister of Rajasthan Vasundhara Raje wrote to
me in April 2005 opposing competitive bidding saying that it was
against the spirit of the Sarkaria Commission recommendations. Dr.
Raman Singh, Chief Minister of Chhattisgarh wrote to me in June
2005 seeking continuation of the extant policy and requesting that
any changes in coal policy be made after arriving at a consensus
between the Central Government and the States. The State
Governments of West Bengal and Orissa also wrote formally opposing
a change to the system of competitive bidding.
22. Ministry of Power, too, felt that auctioning of coal could
lead to enhanced cost of producing energy.
23. It is pertinent to mention that the Coal Mines Nationalisation
(Amendment) Bill, 2000 to facilitate commercial mining by private
companies was pending in the Parliament for a long time owing to
stiff opposition from the stakeholders.
24. Despite the elaborate consultative process undertaken prior to
introducing the amendment Bill in Parliament, the Standing
Committee advised the Ministry of Coal to carry out another round
of discussions with the States. This further demonstrates that the
decision to seek broader consultation and consensus through a
Parliamentary process was the right one.
25. The CAG report has criticised the Government for not
implementing this decision speedily enough. In retrospect, I would
readily agree that in a world where things can be done by fiat, we
could have done it faster. But, given the complexities of the
process of consensus building in our Parliamentary system, this is
easier said than done.
26. Let me humbly submit that, even if we accept CAG`s contention
that benefits accrued to private companies, their computations can
be questioned on a number of technical points. The CAG has
computed financial gains to private parties as being the
difference between the average sale price and the production cost
of CIL of the estimated extractable reserves of the allocated coal
blocks. Firstly, computation of extractable reserves based on
averages would not be correct. Secondly, the cost of production of
coal varies significantly from mine to mine even for CIL due to
varying geo-mining conditions, method of extraction, surface
features, number of settlements, availability of infrastructure
etc. Thirdly, CIL has been generally mining coal in areas with
better infrastructure and more favourable mining conditions,
whereas the coal blocks offered for captive mining are generally
located in areas with more difficult geological conditions.
Fourthly, a part of the gains would in any case get appropriated
by the government through taxation and under the MMDR Bill,
presently being considered by the parliament, 26% of the profits
earned on coal mining operations would have to be made available
for local area development. Therefore, aggregating the purported
financial gains to private parties merely on the basis of the
average production costs and sale price of CIL could be highly
misleading. Moreover, as the coal blocks were allocated to private
companies only for captive purposes for specified end-uses, it
would not be appropriate to link the allocated blocks to the price
of coal set by CIL.
27. There are other important technical issues which will be gone
into thoroughly in the Ministry of Coal's detailed response to the
PAC and I do not propose to focus on them.
28. It is true that the private parties that were allocated
captive coal blocks could not achieve their production targets.
This could be partly due to cumbersome processes involved in
getting statutory clearances, an issue we are addressing
separately. We have initiated action to cancel the allocations of
allottees who did not take adequate follow-up action to commence
production. Moreover, CBI is separately investigating the
allegations of malpractices, on the basis of which due action will
be taken against wrongdoers, if any.
29. From 1993 onwards, successive governments continued with the
policy of allocation of coal blocks for captive use and did not
treat such allocations as a revenue generating activity. Let me
reiterate that the idea of introducing auction was conceived for
the first time by the UPA Government in the wake of increasing
demand for captive blocks. Action was initiated to examine the
idea in all its dimensions and the process culminated in
Parliament approving the necessary legislative amendments in 2010.
The law making process inevitably took time on account of several
factors that I have outlined.
30. While the process of making legislative changes was in
progress, the only alternative before the Government was to
continue with the current system of allocations through the
Screening Committee mechanism till the new system of auction based
competitive bidding could be put in place. Stopping the process of
allocation would only have delayed the much needed expansion in
the supply of coal. Although the coal produced thus far from the
blocks allocated to the private sector is below the target, it is
reasonable to expect that as clearances are speeded up, production
will come into effect in the course of the Twelfth Plan.
Postponing the allocation of coal blocks until the new system was
in place would have meant lower energy production, lower GDP
growth and also lower revenues. It is unfortunate that the CAG has
not taken these aspects into account.
31. Let me state emphatically that it has always been the
intention of Government to augment production of coal by making
available coal blocks for captive mining through transparent
processes and guidelines which fully took into account the
legitimate concerns of all stakeholders, including the State
Governments. The implicit suggestion of the CAG that the
Government should have circumvented the legislative process
through administrative instructions, over the registered
objections of several state governments including those ruled by
opposition parties, if implemented would have been undemocratic
and contrary to the spirit of the functioning of our federal
polity. The facts speak for themselves and show that the CAG's
findings are flawed on multiple counts.
32. This, in short, is the background, the factual position and
the rationale of government's actions. Now that the report of the
CAG is before the House, appropriate action on the recommendations
and observations contained in the report will follow through the
established parliamentary procedures.