Corruption in Coal

The increase in corruption in coal is closely linked to the increasing importance of this mineral in the economy and of the industry in political funding

When the coal industry began, it was distant from politics. But as it transited through its four distinct phases, that connection became progressively stronger, and culminated in the 2005-10 allotments


Coal mines were controlled by local mafias and business families, some of whom were asked by the Centre to step in after the British left

This arrangement had its problems

Miners were not selling to core users (namely, power, steel and cement), but to whoever could pay the most

Some would shut down the mine whenever it was not profitable for them

Labour, too, was treated harshly

In some cases, like the Dhanbad coal mafia, the miners entered politics. But the reasons were mainly to protect their own local interests by controlling the appointment of local bureaucrats, etc


Indira Gandhi nationalized coal. Coking coal in 1973 and non-coking coal in 1974-75and brought everything under CIL and its subsidiaries

To exploit coal more scientifically and increase production; to curb unethical practices; and to take better care of employees and develop nearby communities

However, with nationalization, the presence of politicians also increased

Ripple effects followed

CIL and its subsidiaries began under-reporting production

They would take out 15 MT and report only 10 MT. The remaining 5 MT would be sold in the open market, with proceeds distributed between the ministers, the management, etc

New ways to siphon off coal were found. Like through coal washeries. Indian coal contains 40-52 % ash and needs to be washed

Some would divert to the open market part of the coal that came to them for washing, and report it to the coal PSUs as ash. Another form of corruption was in sales. Employees of coal companies demanded payments from users, or users were willing to pay, for supply of good coal. Whenever we complain about this, we are told we should stop taking coal from CIL if we are so unhappy with what we get


Three amendments to the Coal Mine (Nationalization) Act in 1976, 1993 and 1996 saw the private sector return to coal mining

Private companies could not extract coal for sale to others, but they were allowed to own and mine blocks for captive use to feed their power, steel and cement plants, and for coal gasification


Between 2005 and 2009,138 blocks were given to private players an average of 28 a year

One, the government initiated reforms in the power sector. A stampede into power generation ensued. The Planning Commission had envisaged the addition of 100,000 MW during the 12th plan period (2012-17).About 84% of this is coal-based.

Two, in the second half of the decade, China and the rest of the world shifted gears, and commodities became more valued. In India, as CIL struggled to meet demand, coal imports increased. But these were at prices higher than the inelastic, government-set CIL prices. As global coal prices rose from $56 per tonne in 2005 to $98 per tonne in 2008companies interest in captive blocks spiked

Captive coal works out 57-76 % cheaper than coal from other sources

In the absence of a bidding mechanism, allotments were decided by a screening committee, which was headed by the coal secretary, with representation from states and other ministries concerned. Discretion was embedded in the allotment process. the criteria are so broad that any decision can be justified, the Ashok Chawla committee on allocation of natural resources had said in May 2011

Choosing one winner from 10-50 applicants increased the importance of bureaucrats, ministers and politicians. The nature of political rent-seeking from coal expanded into the first of three new directions: discretionary allotment of blocks

If there are three companies in the running and one gets through to a secretary, the other two try and go even higher to a minister. A parallel system of auctions started which company would pay the most for a block

The second direction political rent-seeking expanded into was clearances. Before starting production, a company needs clearances from the coal ministry, environment ministry and the state where the mine is located. This process is rife with red tape and corruption

Thirdly, politicians are coming closer to the coal business, with their extended family having an equity or business interest

Source: ET


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