Legal and governance infirmities in the allotment of mineral blocks to private parties

Date: 14.03.23

The present government at the Centre has embarked on a massive allocation of mineral blocks to private agencies, ostensibly to raise revenues and to give a boost to mineral production.

Sustainable mining:

The Commission wishes to point out that extractable mineral resources are severely limited and at the present rates of production, they may not last more than 10-20 years. It is, therefore, necessary that they are conserved to the extent possible by ensuring that the demand for minerals is prudently managed by enhancing their end-use efficiencies, recycling their use to the extent feasible and replacing their use, to the extent possible, by renewable substitutes.

For every tonne of a mineral extracted, a matching exploration effort to find new reserves to replenish the same by maintaining the reserve-replacement ratio in excess of unity is a necessary condition to be fulfilled to maintain the sustainability of mining.

Privatisation of mining is not necessarily compatible with the above-cited objectives, as private mining operations are driven by profit maximisation. As a result, private investment shifts from exploration to maximising mineral production, a shift that may conflict with optimal production levels necessary to restrict the same to the extent it can be replenished.

Legal implications:

Most mineral blocks in the country are located in notified Scheduled Areas, where legislations that protect the tribals, require the local Gram Sabhas to have the first say on mining. Also, some of these laws permit mining exclusively by tribal societies and public sector mining companies, not by private companies, a legal restraint reiterated by the apex court time and again. The Centre has not fully complied with these protective provisions nor it has consulted the National Commission for the Scheduled Tribes (NCST), as mandated under Article 338(9) of the Constitution.

Therefore, many mineral block auctions so far conducted are prima facie illegal.

Governance issues:

Earlier, the mineral development and regulation legislation permitted allotment of mineral blocks on a first-come-first-served basis, which the apex court, keeping in view the findings of the CAG at that time, held to be non-transparent and invalid. Consequently, the then UPA government initiated an amendment to introduce auctions as a means to ensure transparency in the allotment of mineral blocks. The NDA government that came to power in 2014 followed up on that initiative and introduced auctions, which one would have expected would enhance transparency.

On the first batch of coal block auctions conducted by the NDA government, the CAG submitted its report (Report No 20/2016), which raised some disturbing concerns.

The CAG report revealed how some private groups manipulated the auction procedure to subvert competition to their advantage. The relevant CAG observations are discussed below.

A. Inadequate competition:

in the auction of Sarisatolli and Trans Damodar coal mines, which were put up for auction on 27 December 2014, West Bengal Power Development Corporation Limited (WBPDCL) was disqualified (February 2015) for non-payment of additional levy. This was done despite the fact that for the coal mines for which WBPDCL was held as defaulter, the prior allottee, as per the amended definition, was a JV company i.e. Bengal Emta Coal Mines. Therefore, this disqualification was not as per the existing provisions….

Disqualification of WBPDCL from participating in the auction of Sarisatolli and Trans-Damodar coal mines, on the basis of it being a prior allottee and not depositing the additional levy within the prescribed time, was not as per the existing provisions”

“Audit noted that in 11 out of the 29 coal mines successfully auctioned during the 1st and 2nd tranche, QBs ranging between two and three were from the same company/parent-subsidiary company coalition/JV coalition. Audit could not draw an assurance that the potential level of competition was achieved during the Stage II bidding of these 11 coal mines auctioned in the first two tranches”

A Case study in Chapter 5 of the report refers to a particular coal block in the case of which a single bidder thwarted competition by setting up subsidiaries, which raises concerns about price discovery and the unauthorised means adopted by the bidder to corner a coal block, making a mockery of the bidding process.

Non-transparency in the case of allocation of coal blocks through the Government dispensation route:

The test of transparency in the allotment of coal blocks, as laid down by the apex court in the “coalgate” case, should apply as much to coal blocks allotted to State governments through the Government dispensation route, when the States in turn made allotments to private Mine Development Operators (MDOs). However, it appears that the present NDA government bypassed the test by providing exemption that unduly benefitted a few private miners such as the Adani Group ( ).

The CAG report emphasised the need for transparency in the allotment of blocks through the State dispensation route but the government seemed to have brushed it aside.

If this is factually true, it raises a serious concern about the propriety of such an exemption granted by the NDA government.

Only an objective investigation can bring the factual position to light.

B. Unauthorised diversion of coal from captive mine:

“MOC’s replies need to be viewed in light of the fact that though the vesting order of Sarisatolli coal mine was issued on 23 March 2015 and the proposed diversions were approved in August 2015, but the intimations of the proposed diversions were given to the MOP, CERC, SERC and the concerned State Government only on 20 January 2016, after the issue was raised by Audit.”

Inaction on the part of the government on CAG’s findings:

When the CAG findings became public, there were news reports at that time ( ) referring to how some bidders short-circuited the auction process to subvert competition at the cost of genuine price discovery.

Apparently, the Ministry of Coal, which conducted the auctions, failed to act on the same, raising concerns about the underlying propriety.

More recent news reports ( ) refer to the same CAG report of 2016 on one particular private business conglomerate choking competition to corner a valuable coal block, apparently on the basis of information accessed from the CAG office. If what has been reported is correct, it calls for a comprehensive investigation, as such a manipulation of the sanctity of the auction process would have defeated the very idea of competition that an auction procedure was intended to achieve.

In particular, we feel that it is incumbent on the part of the Government to provide satisfactory answers to the following questions.

  1. CAG’s findings in this case were specific and have implications for the integrity of a competitive auction. Did the Ministry get more details from the CAG office and take immediate follow-up action?
  2. If a bidder has tried to hoodwink the Ministry, should not the Ministry have initiated action against the concerned bidder and revoked the coal block allotment with a deterrent penalty?
  3. According to the CAG report, there were at least 11 such cases of aborted competition. In light of the earlier judgement of the Hon’ble Supreme Court, was it not incumbent on the part of the Ministry to have taken the CAG’s findings with the sense of seriousness they deserve and taken the investigation to its logical end?
  4. If reports about non-transparency in the allotment of coal blocks obtained by the State governments are true and if the present government failed to revoke such allotments by providing an undue exemption, it calls for an independent enquiry.
  5. One of the findings in the CAG report is about the unauthorised diversion of coal by a business group. Did the Ministry adequately penalise the concerned group?

It is somewhat distressing that, instead of the Ministry taking the CAG findings seriously and taking action, it should remain silent, while it is the media investigations that should bring the details underlying the CAG report to the public domain.

It is ironic that the present government which rightly followed up on an earlier CAG report and adopted competitive resource auctioning as the means to discover the price of scarce natural resources such as minerals and spectrum should fail to take cognizance of the revealing findings that emerged from a subsequent CAG report.

People’s Commission on Public Sector and Public ServicesAbout Peoples’ Commission on Public Sector and Public Services (PCPSPS): Peoples’ Commission on Public Sector and Services includes eminent academics, jurists, erstwhile administrators, trade unionists and social activists. PCPSPS intends to have in-depth consultations with all stakeholders and people concerned with the process of policy making and those against the government’s decision to monetise, disinvest and privatise public assets/enterprises and produce several sectoral reports before coming out with a final report. Here is the first interim report of commission- Privatisation: An Affront to the Indian Constitution.

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