Shreegireesh Jalihal
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The Modi government granted an extraordinary favour to controversial tycoon Gautam Adani boosting his coal business.
Documents we @reporters_co accessed show internal discussions where top govt officials concluded Adani's coal deals were 'inappropriate'.
Even the Prime Minister's Office flagged them for lack of transparency. But ultimately, the govt decided to leave the deals untouched. While simultaneously agreeing to disallow Adani's competitors from signing similar deals.
First, a bit about these "deals" I'm referring to: They're called Mine Developer and Operator or MDO contracts.
Typically signed by state govt-owned firms. The PSU, after bagging a coal block, signs on a private firm to actually mine the block.
The MDO doesn't own the mine but practically runs the whole show. These contracts have been controversial for quite some time now: primarily because the rate at which the MDO sells the coal to the PSU is kept under wraps.
Experts have also flagged the MDO route as a backdoor channel for private firms to corner coal reserves. While bypassing competition auctions entail.
Enter Adani.
The MDO model was 'pioneered' by the Adani Group which prides itself on signing the first MDO in the country.
It all began in 2006 when a Rajasthan govt-owned power supply firm picked Adani as its Joint Venture partner. A year later, the Rajasthan firm bagged the Parsa East Kente Basan block, with 450 million tonnes of coal, in Chhattisgarh's densest forests.
In 2008, the Rajasthan PSU and its Adani-led Joint Venture (Adani owned 74% equity) signed the country's first MDO contract. At the time the BJP was in power in both Rajasthan and Chhattisgarh. By 2013, the Adani-led MDO began mining the block.
Then the Supreme Court stepped in to ruin the party.
In response to a PIL, India’s highest court quashed the allocations for 204 coal blocks in August 2014.
Parsa East Kente Basan was on the list of the 204 blocks.
The Supreme Court in its judgement on the Coal Scam found the contracts between state PSUs and private companies suspect.
Its landmark verdict went beyond the MDO issue, though.
The SC observed that 204 had been coal blocks allocated 'illegally' and 'arbitrarily' with no system -- like an auction -- in place to ensure revenue optimisation for the govt. Among these 204 were 101 allocated to state govt firms. This, the court said, was illegal at the time.
Many of these state PSUs had then handed over the blocks to private companies. With allocations to the states quashed, the MDO contracts the states had signed with private companies too now stood cancelled.
This landmark Coal Scam verdict by the Supreme Court came in August 2014. Months after the BJP rode an anti-corruption wave to power.
The Modi govt now had a clean slate to work with. The govt could now auction all 204 coal blocks without worrying about previous beneficiaries who had got the blocks for a song.
Instead, it brought in a law that, in one part, undid the impact of the SC ruling.
The Coal Mines Special Provisions Act, 2015, enacted by the Modi govt was supposed to clean up the mess that the previous govts had created. It, instead, empowered the Union govt to make discretionary allocations to state PSUs.
After all the noise about Coal Scam, the new govt decided to create a legalised route to also allocate (and not auction) blocks to states.
More alarmingly, the new law snuck in a provision that allowed all new allottees of coal blocks to continue pre-2014 contracts! This included pre-2014 MDO contracts.
This is Section 11 of the law.
Hold on tightly to this Section 11 for now. It was a lesson for us on how a govt can provide benefits to some, not by breaking a law, but by writing one carefully.
With these supposed new 'transparent' and clean new rules in place, in 2015 the Coal Ministry reallotted the Parsa East Kente Basan coal block to the Rajasthan govt's power supply company.
Rajasthan gov't deployed this Section 11. It did not float fresh tenders to pick a new JV partner. There was no talk of a new contract either.
It went ahead and reinstated its 2008 MDO deal with Adani.
No prizes for guessing who was in power in Rajasthan and Chhattisgarh at this point: BJP.
Adani was now back to work on the coal block it had begun mining two years ago.
See, it was all legal. The effect of the Supreme Court orders (effectively cancelling earlier MDO Contracts) had been annulled.
Some have earlier believed or implied it was illegal. No. It was watertight legally. After all, Modi govt had created the special legal protection for it under Section 11.
Internally the govt was worried about this cozy arrangement it had legislated. Worried about the optics of it.
Govt think tank NITI Aayog shared a secret report on the coal sector with the cabinet secretary — India's senior-most bureaucrat who reports to the PM directly.
The report triggered an intense review of the MDO business by the cabinet secretary and the Prime Minister’s Office.
Now, moving on to the docs @Kum_Sambhav and I exclusively accessed.
They show the PMO was discussing how flawed the MDO model is. “The practice of MDO appointment” lacks “consistency and transparency” for which it will “continue to be questioned in public domain,” said a PMO official in a March 2020 letter to the Aayog.
The official quoted the cabinet secretary in the letter that “appointment of MDOs before the allotment of mineral blocks appears inappropriate and this may not be allowed in future.”
Simply put, the PMO was referring to the practice of continuing deals the SC had found illegal.
The Aayog and ministries of coal, finance, mines and steel agreed with the PMO and decided that no such contracts would be allowed in the future.
Officials from these ministries met twice in 2020 — on August 25 and Oct 7 — to come up with recommendations the PMO had asked for.
On “appointments of MDO before allotment of block”, the mandarins said the practice “takes cue” from Section 11 of the Modi's new coal law.Remember Section 11? It's the clause that allows firms to continue pre-2014 MDO contracts.
The officials found there was only one case which fit the description of what the PMO itself had ascertained to be "inappropriate": the Adani MDO deal for the Parsa East Kente Basan block.
The officials immediately decided to not do anything about this.
The officials found there was only one case which fit the description of what the PMO itself had ascertained to be "inappropriate": the Adani MDO deal for the Parsa East Kente Basan block.
The officials immediately decided to not do anything about this.
They put it on record that the law would not be amended. Despite the fact that the 'inappropriate' appointments were legally backed by the law.
Instead they decided contracts signed in the future would include a clause preventing old MDO's from being reinstated.
To summarise: Officials found Adani's MDO inappropriate. Left it untouched. Decided not to allow others to have the same benefit.
But this wasn't all.
We found another block that could fit the description of an 'inappropriate' deal. One even the officials missed.
I'll momentarily zap you back to the UPA era. In August 2006, the Chhattisgarh govt's company bagged a coal block adjacent to Parsa East Kente Basan. Chattisgarh too signed up Adani as its JV partner and subsequent MDO for the block.
But the 2014 SC order quashed Parsa's allocation to Rajasthan too.
So with the new laws put in place by the Modi govt, Adani advised Rajasthan BJP gov't to apply for the Parsa block. It went by Adani's recommendation and asked the BJP govt at the Centre to allocate it the block. The Centre obliged and allocated it the block in March 2015.
So the block had now moved from one BJP government in Chhattisgarh to another BJP govt in Rajasthan.
And, this time Rajasthan gave the Adani group the MDO Contract for the block. Without fresh auctions.
Adani remained the MDO for Parsa even as the block changed hands.
Again, the new rules, technicalities and regulations make it all legal.
You might wonder, just as we did, if is this a textbook case of crony capitalism. Bending and moulding rules in a manner that brings pecuniary benefits unfairly to some. But, that we leave for you to mull over. The story stops short at stating what even the Modi govt admitted: It was all rather "inappropriate".
In the spirit of transparency, we are releasing all the documents we secured and reviewed for the story.
The #CoalFiles investigations took a LOT of time and effort. You can read the documents and part one & two here: Coal Files Series
