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'Coalgate' blackens Indian leaders
Scandal over coal allotments that allegedly resulted in $33bn loss triggers calls for transparency and regulation.
Last Modified: 12 Sep 2012 11:57
Coal accounts for more than 50 per cent of India's energy needs [GALLO/GETTY]

India is in the midst of an intense political slugfest, fanned by a raging scandal dubbed the 'Coalgate' by the media.

Many independent analysts believe the scandal, which centres around a coal allotment scam, would end up implicating politicians across the nation, if properly investigated. 

The scandal kicked off when the Comptroller and Auditor General of India (CAG) - the country's independent auditor - accused the federal government of allocating coal blocks to public sector entities and private companies in a manner that was far from transparent.

As accusations swirl that politicians of all stripes benefited from the allocations, they have raised political tensions, disrupted the functioning of parliament and brought disrepute to both the world's largest democracy and its political class.

Roots of the scam

Coal is crucial in India because it accounts for more than half of the country's energy needs.

India is the world's largest coal producer, with the government-owned Coal India Limited (CIL) alone controlling more than 80 per cent of mines and producing more than 400 million tonnes every year.

CIL is also the only seller of coal in India, but the amount it produces fails to meet India's soaring energy needs, prompted by a fast-growing economy.

A lack of coal to generate power has precipitated a crippling energy crisis, and the country recently faced two major power outages. According to private infrastructure consultancies, some 20 per cent of India's power-generating capacity is idle because of a lack of coal.

"CAG also said that India had lost a whopping $33bn by allotting these coalfields cheaply, and that there was lack of objectivity and transparency in the allocation process."

The government's inability to mine enough coal to meet India's steadily growing energy needs, coupled with opacity over eventual marginal privatisation of coal fields - in what remains an overwhelmingly government-controlled business - is truly what is at the heart of Coalgate.

Since 1976, India has allowed private producers of iron and steel to own coal mines to generate their own power.

From 1993 onwards, companies generating electricity were also allowed to own private coal mines for their own use. Between then and 2005, the government gave away 41 licences to operate captive mines to private companies.

As the economy and energy needs exploded, more of these licences were given away.

Between 2006 and 2009, 75 licenses were allotted to private companies to mine coal to meet their energy needs.

A government "screening committee" decided who would get a licence, and who would not. For much of the time during the period under review, the coal ministry was headed by the Prime Minister Manmohan Singh. Hence, the opposition demands for Singh's resignation.

State governments and politicians had the potential to back the case of favoured businessmen, who could then walk away with a license to open a factory or operate a mine.

In 2004, the government did possibly realise that it could earn more money and be more transparent by auctioning these licences.

But, quite inexplicably, it took six years before a law to auction coalfield licences came into existence. The government says such delays can happen in a divided polity where consensus on policy takes time to build.

Huge loss

The CAG estimates the country lost a whopping $33bn by allocating the coalfields without auction.

Having secured the licences, some coal firms allegedly sold coal illegally; others who got licences just squatted on the mines, not doing anything. The CAG report said only 28 of the 86 coalfields given licenses to produce coal by 2010-11 had actually begun production by this March.

Last week, the government moved swiftly cracking down on half a dozen companies for allegedly misrepresenting facts when they applied for coalfield licences.

But it failed to placate the opposition Bharatiya Janata Party (BJP), which refused to let the parliament function, insisting first on Singh's resignation over the scandal, and then, on cancellation of coalfield licences and the launch of an independent probe.

The government says no investigation can happen under the diktat of the opposition, and has ruled out the resignation of Singh.

Singh, for his part, says the stalling of the parliament was a "negation of democracy", and has staunchly defended his government's policy of allotments, highlighting that the policy has existed since 1993 under previous governments.

Partisan deadlock

In part thanks to BJP's intransigence, the recently concluded monsoon session of parliament session turned out to be a washout, with almost no business done.

According to the watchdog PRS Legislative Research, only four of 30 bills listed for consideration in the parliament were passed during the session.

There was almost no debate on key legislation - the lower house passed three bills in under five minutes. This included a key bill to protect women against sexual harassment, passed in 16 minutes without any discussion.

"Not to put too fine a point on it, we are running a kleptocracy, one where the majesty of the law is used repeatedly to favour the growing tribe of crony capitalists, until a crisis erupts."

- TN Nian, business and political analyst

Coalgate also led to the lowest productive time in the parliament since the winter session of 2010. 

The two houses met for 51 of the 220 hours they were scheduled to meet, and lost 12 of the 20 working days in a row.

Analysts believe the scandal, if properly investigated, would implicate politicians of all stripes, at the Centre and in the states, despite allegedly taking place under the watch of the ruling Congress government.

"There are occasions when obstructing the parliament brings greater benefit to the country," said senior BJP leader Arun Jaitley, defending his party's tactics. "Our strategy does not permit that we allow the government to use parliament to end this debate without any accountability."

'A sweeping saga'

Leading business and political analyst TN Ninan said the coal scandal has now "become a sweeping saga that lays bare the contemporary Indian state".

"Not to put too fine a point on it, we are running a kleptocracy, one where the majesty of the law is used repeatedly to favour the growing tribe of crony capitalists, until a crisis erupts and all bets come off," Ninan wrote in Business Standard.

"Companies squatted on coal mine allotments for years, without bothering to even apply for permissions to begin mining, but the official story when it came to coal shortages was that Coal India had failed."

Analyst Akshay Mathur of think-tank Gateway House believes the dustup between the government and the opposition over the coals scandal is ironic.

"What makes the current ruckus in parliament both sad and amusing is that the privately-held coal blocks were only ever expected to account for less than 10 per cent of total production in the country," he wrote on the Financial Times' blog beyondbrics.
 
But others have also pointed out that Coalgate exemplifies the rot that lies within the system.

As independent analyst Ashis Dasputa explained, "It is a telling example of India's old politics of cronyism and corruption catching up with new urgencies of transparency, fairness and institutional reform."
 
BJP spokesman Prakash Javadekar has meanwhile called for greater transparency, telling reporters on Sunday that people "should know the truth as to on what basis coal blocks were sanctioned to private companies and this can be done if the documents pertaining to the proceedings are made public."

For many across India, the scandal underlines the need for upright leadership, stronger institutions, increased transparency and fair regulation.

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