Modi Govt Ignored BJP Leader RK Singh And Rajeev Chandrasekhar’s Red Flags, Proceeded With Flawed Coal Auctions: The Reporters’ Collective

The recent revelations by the Reporters’ Collective present a troubling picture of the coal auction process under the Modi government. The Collective’s report found that despite promises of transparency and fairness, systemic flaws in the auction regime allowed for potential collusion and undervaluation of coal blocks, ultimately undermining the government”s objectives and compromising the public interest.

The findings by the group reveal that the Union government had received early warnings regarding potential flaws in its new coal regime by then MPs and now Union ministers RK Singh and Rajeev Chandrasekhar, but the red flags were ignored.

On February 8, a white paper was presented in the parliament, which described the efforts of the Narendra Modi-led government in steering the country away from the pitfalls of a mismanaged economy inherited from the Congress-led UPA government. In this white paper, a section devoted to corruption shed light on the Rs. 1.86 trillion coal block allocation scandal, which had plagued the UPA governments.

Highlighting the strides made under the Modi government, the paper boasted of a transformation from “darkness to light in coal licensing,” attributing this change to the implementation of coal reforms aimed at ensuring transparent allocation of coal resources. It acknowledged the impact of the coal scam, which had shaken the conscience of the nation back in 2014.

In 2015, the BJP-led NDA government introduced a new coal auction and allocation regime. Over 200 blocks of coal, containing a staggering 41 billion tonnes of coal, were earmarked for distribution.

Singh and Chandrasekhar had cautioned against the hastily drafted regulations governing the distribution of India’s coal, warning that private companies could exploit loopholes in the system to rig auctions and reap enormous benefits at the expense of the public. Despite their discreet forewarnings, directed to the then Union Finance Minister, Arun Jaitley, and Former Coal Minister, Piyush Goyal, the government chose to disregard their advice. Instead, it publicly praised the new coal auction regime as transparent and proceeded to allocate and auction numerous mines under these regulations.

A year later, in July 2016, the concerns raised by the two parliamentarians were vindicated. The Comptroller and Auditor General of India (CAG) presented a damning report to the Parliament, providing evidence of the dubious nature of the coal auctions. The report outlined several instances of collusion and potential auction rigging by private companies, resulting in the cornering of coal blocks at less than optimal financial returns for the government.

Ironically, by this time, the two parliamentarians, who had shown prudence by conveying their concerns through internal letters rather than airing them publicly, had ascended to ministerial positions within the government. RK Singh from the BJP was appointed in charge of the power ministry, while Rajeev Chandrasekhar, an independent member of Parliament supporting the BJP, was made the Minister of State for Electronics and Information Technology.

The initial phases of the auctions in 2015, scrutinised by the CAG, witnessed the allocation of a significant number of ready-to-use mines to private entities. These mines are operational immediately with minimal operational costs and are highly coveted by private companies. However, these auctions were marred by collusion, arbitrary decision-making, and the stifling of competition.

Subsequent to these revelations, the government made adjustments to its auction regulations, culminating in a complete overhaul in 2020. However, by this time, the damage had already been done.

Commenting on the matter, a coal sector researcher and activist, pointed out to the Collective the discrepancy between the government”s stated objective of fetching fair prices for coal mines and the reality of the situation. The segregation of blocks into different categories and the limitation on the number of bidding companies undermined this objective, he argued, ultimately benefiting private entities at the expense of the public exchequer.

In August 2014, a landmark judgment by the Supreme Court of India quashed 204 coal mine allocations, spanning the period between 1993 and 2011, deeming them “arbitrary and illegal.” During this period, coal blocks were allocated to companies based on the recommendations of a screening committee comprising bureaucrats, bypassing competitive auctions. This flawed process, as adjudged by the apex court, favored companies at the expense of the public exchequer, triggering public outrage.

The subsequent estimation by the CAG revealed that the flawed allocation process had cost the government a staggering Rs. 1.86 trillion. Had the blocks been allocated competitively, the government would have rightfully earned over a trillion rupees. The BJP, then in opposition, capitalised on the draft CAG report leaked to the media in 2012, dubbing it the “coal scam” and leveraging it for electoral gains. The promise of a fair and corruption-free regime for coal allocation featured prominently in the BJP”s 2014 election manifesto.

Three months after assuming power, the Supreme Court delivered its landmark verdict, providing the new Union government with a clean slate to address the issue. Swiftly, the government began drafting a new law to govern coal auctions. In October 2014, a mere two months after the Supreme Court judgment, the government published its first ordinance shaping the coal sector. This was followed by a second ordinance in December 2014, and the enactment of the Coal Mines Special Provisions Act in February 2015.

Under this new legislation, coal blocks were slated for auction, aligning with the BJP”s electoral promise. However, as highlighted in the letters by Singh and Chandrasekhar, the new auction process was fraught with significant gaps and shortcomings.

In December 2014, prior to the enactment of the second ordinance, RK Singh, BJP”s Lok Sabha MP from Bihar’s Arrah, raised concerns about the proposed legislation. A former Indian Administrative Services officer, Singh chose to communicate his apprehensions discreetly through a letter addressed to the then Finance Minister Arun Jaitley. He questioned the wisdom of limiting the auction of coal mines to specific industries, such as private power companies, cement companies, and coal companies, suggesting that this could result in undervalued coal mines being allocated through limited tenders.

Singh”s apprehensions materialised when the CAG highlighted instances of bid nullification and collusion during the auctions. Despite the government”s attempt to modify the auction design to prevent cartelization and price manipulation, concerns persisted. Singh warned against the dangers of limited tenders and allotment, cautioning that these practices could lead to scams reminiscent of those that plagued previous administrations.

Indeed, the government”s decision to empower itself to allocate coal blocks to government-owned companies without auctions, as highlighted by Singh, further underscored the validity of his concerns. The subsequent involvement of government-owned companies in coal block operations, particularly through contracts with private entities, validated Singh”s earlier warnings.

In February 2015, as the new coal law neared enactment, Rajeev Chandrasekhar echoed similar sentiments in a letter addressed to Piyush Goyal. Referencing remarks by the Delhi High Court criticizing the clarity of the ordinance and questioning the segregation of coal blocks by end-use, Chandrasekhar expressed reservations about critical aspects of the bill and its drafting.

As an independent Rajya Sabha MP from Karnataka at the time, Chandrasekhar had publicly supported Narendra Modi in the 2014 Lok Sabha polls. His letter to Goyal reflected concerns about the perception of compromise surrounding the new legislation, which was intended to serve as the government”s flagship policy statement on dealing with natural resources.

Chandrasekhar”s apprehensions regarding the absence of independent regulation, true free and fair auctions, and environmental obligations surrounding coal mining echoed those raised by Singh. Despite his reservations, the government persisted with its narrative of transparent and fair auctions, a narrative that was later contradicted by the findings of the CAG report and other media reports.

In response to the letters from Singh and Chandrasekhar, Piyush Goyal asserted the transparency and fairness of the auction regime envisioned by the new legislation. He outlined the two-stage auction process designed to prevent cartel formation and undervaluation of coal mines. However, the subsequent cancellation of bids and the CAG”s observations regarding competition levels cast doubt on the efficacy of these measures.

Goyal”s claims of transparency and fairness were undermined by the findings of the CAG, which highlighted instances of potential collusion and lack of competition in several auction cases.