New Delhi: On 8 February, a white paper on the Indian economy was tabled in the parliament in an apparent display of how the Narendra Modi government turned around a mismanaged economy they inherited. In the paper, a section on corruption is dedicated to the Rs. 1.86 trillion coal block allocation scam under the previous Congress-led UPA governments. 

The paper claims that the Modi government took the country from “darkness to light in coal licensing” by ensuring “transparent allocation of coal resources” with its coal reforms.

“The coal scam shook the conscience of the nation in 2014,” the paper says. 

In 2015, Modi-led BJP government ushered in a new coal auction and allocation regime to distribute more than 200 blocks of coal with over 41 billion tonnes of coal.

The Reporters’ Collective has found, contrary to claims the white paper makes, the Union government received early warnings that its own new coal regime was compromised and “will lead to scams”. These warnings came from two current Union ministers that Prime Minister Modi trusts, who at the time of sending the missives were Parliamentarians – one from the BJP and the other supporting it as an independent. 

They cautioned that the “hastily drafted” regulations to distribute India’s coal would allow private companies to rig auctions and corner huge benefits at a cost to the public. Their discreet forewarnings were sent to the then Union Finance minister, Arun Jaitley and the former Coal minister, Piyush Goyal. One of the parliamentarians marked a copy of the letter to Prime Minister Modi as well.  

The government did not heed their advice. It instead hailed the new coal auction regime in public as transparent, and went on to allocate and auction dozens of mines under the new regulations. About a year later, in July 2016, the two parliamentarians were proven right. The government’s auditor, Comptroller and Auditor General of India (CAG) tabled a report in the Parliament giving evidence of how dubious the coal auctions had turned out. The report pointed to several cases of collusion and potential auction rigging by private companies to corner coal blocks at less than optimum financial return to the government. 

By then, the two parliamentarians, who had shown discretion –  warning the government through internal letters but not raising it either in the Parliament or in public forums – were elevated as ministers. One of them, RK Singh from the BJP was put in charge of the power ministry and the other, Rajeev Chandrasekhar, an independent member of the Parliament supporting BJP, was made the minister of State for Electronics and Information Technology. 

The first two tranches of the auctions in 2015, which the CAG had scrutinised, saw a large number of ready-to-use mines being handed out to private companies. As the name suggests, ready-to-use mines can be mined immediately with minimal operational costs. They are the most sought after by private companies and the government usually expects these mines to fetch a good price. 

The Collective recently revealed how the auctions were rigged by private companies, were laced with arbitrary decisions, and stifled competition. 

The government in subsequent tranches tweaked its auction regulations and later in 2020 revamped it entirely. But by then, the damage was done. 

The letters of the two ministers warning the prime minister and the Union government are being made public for the first time by The Collective. This is arguably the first time in the ten years of the BJP being in power that such prescient warnings by trusted and prominent party members against systemic scams in their own government have emerged.

“The MPs’ warnings are absolutely right. The Supreme Court had clearly said mine allocations should be in national interest. The government chose to do it in an auction system that was riddled with loopholes especially in the first two rounds,” said a coal sector researcher and activist on the condition of anonymity given increased government scrutiny. “The governments’ own stated objective of fetching fair price for the coal mines was defeated by segregating blocks into different categories and limiting the number of companies that can bid.”

The Collective sent detailed queries to Rajeev Chandrasekhar, RK Singh and the Coal Ministry. The story will be updated once a response is received.

BJP’s (Lost) Opportunity to Do Right

In August 2014, the Supreme Court of India, in a landmark judgment, quashed 204 coal mine allocations. The court found these allocations, made between 1993 and 2011, “arbitrary and illegal”.

Governments in this period had allocated coal blocks to companies on the basis of recommendations of a screening committee comprising bureaucrats. No competitive auctions were conducted to pick a suitable buyer who could have paid a fair amount of money for the coal blocks allocated.

This arbitrary process, the apex court held, led to largesse for the companies while the public exchequer was shortchanged. The fact that valuable natural resources, legally owned by the government, were given away at cheap prices led to public outcry.

The CAG had then estimated that the government lost Rs. 1.86 trillion because of this flawed allocation process. Meaning, had it allocated the blocks competitively, the government would have rightfully earned over a trillion rupees.

The BJP, then in opposition, went to town when a draft of the CAG report first leaked to the media in 2012. Dubbed “coal scam”, it became one of the biggest scandals to rock the Congress-led UPA II government. This was then used for electoral gains. In its 2014 election manifesto, the BJP promised a fair and corruption-free regime for allocating coal. 

Three months after the BJP ascended to power, the Supreme Court’s landmark verdict came in. The new Union government had a clean slate to work with. 

It quickly began drafting a new law under which auctions would run.

Merely two months after the Supreme Court judgment, in October 2014, the government had already published its first ordinance that would shape the coal sector. In December 2014, this was replaced by a second ordinance and in February 2015 the Coal Mines Special Provisions Act was enacted.

Coal blocks would now be auctioned as promised by the BJP. But the new auction process itself had major gaps, as pointed in the letters written by Singh and Chandrasekhar.

Singh’s Early Warnings

In December 2014, right before the second ordinance RK Singh, BJP’s Lok Sabha MP from Bihar’s Arrah, was the first to red flag the proposed legislation. A former Indian Administrative Services officer, Singh served as Bihar’s Home Secretary and later the Union Home Secretary before switching to politics. He first contested the Lok Sabha polls on a BJP ticket in 2014. 

Singh noted in his letter that he was initially planning to voice his concerns in the Parliament but then chose to share his warning more discreetly with the government. 

“I had written out the following with respect to the Coal Ordinance, but on second thoughts I deemed it better to write to you rather than raise these questions in the House,” he began his letter addressed to the then Finance Minister Arun Jaitely.

“Whether a Iimited auction of coal mines for private power companies, cement companies and coal companies in which only these companies will participate will not result in the coal mines being allocated at much lower prices than would be fetched in an open auction,” he said. 

He was referring to the fact that the new law segregated coal mines depending on the specified end-use for coal which could be used for power, cement, steel plants. Only those companies with these end-use plants could bid for the blocks set aside for the purpose.

“If so, whether this would not amount to giving a huge benefit to the above private companies and a commensurate loss to the public exchequer,” asked Singh.

“Any limited tender leads to cartel formation and deliberate undervaluation by people acting in concert – leading to a loss to the public exchequer,” he added.

Singh’s warning was prophetic.

When the auctions began, as pointed by the CAG, the government arbitrarily nullified the bids for four coal blocks. Speaking about it in Parliament in July 2017, then Coal Minister Piyush Goyal conceded that all was not well with the auctions.

“A few complaints were received regarding cartelization in bidding. Since, the final closing bid price in case of 4 coal mines, namely, Gare Palma IV/2 & IV/3, Gare Palma IV/1 and Tara, was not found to be reflecting fair value, the Government did not approve these bids,” he said. “In order to prevent the possibility of cartelization/price manipulation, auction design has been slightly modified.”

But this wasn’t all.

A year after the first round of auctions were held, the CAG observed collusion in at least eleven blocks where “it could not draw assurance that the potential level of competition was achieved”. In other words, the CAG was hinting that the government did not earn the fair revenue it could have. These eleven cases did not include the four Piyush Goyal spoke about in Parliament.

“The concepts of ‘allotment’ and ‘limited tender’ are dangerous, and they may Iead – will lead to – scams,” Singh added.

While “limited tender” referred to a restriction on who could bid for coal blocks, “allotment” was a return to the old regime the Supreme Court had struck down.

The new regime proposed to empower the central government to give away coal blocks to government-owned companies without any auctions. Singh’s caution proved right here too.

As The Reporters’ Collective has reported previously, government-owned companies have signed on private companies to mine the block on their behalf. The Adani Group has bagged the highest number of such contracts. In March 2020, the Modi-led PMO itself labelled “inappropriate” some of these MDO contracts.

Singh’s comments had fallen on deaf ears.

Chandrasekhar Cautions

In February 2015, weeks away from enactment of the new coal law, Rajeev Chandrasekhar wrote a similar letter to Piyush Goyal. 

“I draw your attention to the recent remarks of the Delhi High Court which described the (new coal) ordinance as “totally unclear”,” he said. He was referring to the Court’s remarks in a case by Jindal Steel and Power Limited against the government’s decision to change the specified end-use of a coal block just before auctions were to begin. 

The High Court bench had also questioned the central government on the need for segregating coal blocks by end-use, much like RK Singh had done in his internal note.

“If you recall, I had discussed similar views of mine with you, when the bill was being introduced in the Rajya Sabha and expressed my reservations around some critical aspects of the bill and its drafting,” Rajeev said.

“Regrettably you chose to ignore the same.”

At the time Chandrasekhar was an independent Rajya Sabha MP from Karnataka. In the 2014 Lok Sabha polls, he had publicly backed Narendra Modi as the next prime minister. In September 2016, he took over as head of the NDA Kerala unit. By 2020, he became a national spokesperson for the BJP and in 2021, he was inducted in Modi government’s cabinet where he serves as Minister of State for Electronics and Information Technology.

In his letter, Chandrasekhar reminded Goyal that Indians are “very aware of the several controversies and scams in previous governments dealing with natural resources like 2G, coal, iron ore etc.”

He recalled how the BJP manifesto promised to correct this.

Calling the ordinance “hastily drafted” he said, “At a fundamental level,this bill represents the Prime Minister Narendra Modi government's first statement of policy and thinking on the critical issue of dealing with natural resources.”

“Instead of being a milestone on benchmark in how the government must deal with natural resources it’s being widely perceived as a compromise including on the issue of fair auctions.”

Chandrasekar reminded Goyal that the two had previously spoken about “absence of the issue of independent regulation of the coal sector, true free and fair auctions for price discovery and obligations of mines on issues of environment and citizens living in vicinity.” 

Coal Ministry’s Justification 

Piyush Goyal responded to the two letters in September 2015 when the first tranche of coal auctions had already concluded. Both of them asserted that the auction regime as envisioned by the new law was transparent.

In his reply to R K Singh, he first explained how the two-stage auction would work. The first, called technical round, would rank bidders and the top five or 50% of all bidders, whichever is higher, would proceed to the financial round. The highest bidder in this round would bag the block.

The process, Goyal claimed, ensured, “the possibility of cartel formation and undervaluation of the Coal Mine is precluded.”

Goyal said this despite the Ministry canceling the bids for two blocks over possible cartelization and undervaluation of bids.

In his reply to Chandrasekhar, Goyal similarly asserted that the auctions would be transparent and fair. “To keep the process transparent,the auction of coal mines/blocks is conducted through e-auction mode on an electronic platform,” he added.

Goyal and the government’s claims of transparency, however, were later proven false by the CAG report as well as other reports in the media. 

In its report, CAG had said that it “could not draw an assurance that the potential level of competition was achieved” in eleven cases where multiple competitors for the same mine belonged to the same parent company or joint venture.