*How corruption in coal is closely linked to political funding* M Rajshekhar, ET Bureau Aug 7, 2012, 01.24AM IST http://articles.economictimes.indiatimes.com/2012-08-07/news/33083875_1_political-parties-coal-ministry-coal-blocks
It was a roundtable on 'campaign finance reforms in India', but it brought up a mathematical equation that showed how corruption in coal could ultimately be traced to political funding. Speaking at the Observer Research Foundation event in February, BJP MP Rajiv Pratap Rudy said: "In Goa (which was going to elections then), each candidate, whether from the Congress or the BJP (or other political parties), would be spending Rs 5-7 crore." The official Election Commission ceiling is Rs 16 lakh. At the roundtable, Congress MP Manish Tewari said there were reports of candidates spending Rs 18-20 crore each during the Punjab elections in January. "The vigilance of the Election Commission (on spending ceilings) is driving a lot of this money underground." The average was Rs 3-5 crore per candidate, added Niranjan Sahoo, a senior fellow at the Foundation researching electoral funding. An extrapolation of this across the political spectrum throws up some humungous numbers— and a gaping hole between revenues and expenses of political parties. In the 2009 general elections, the Congress contested 403 seats. Rs 5 crore for each seat adds up to Rs 2,000 crore. India's 5,000 assembly seats, says Sahoo, are even more keenly contested, and more money is spent here. Even at Rs 5 crore per seat, that's Rs 25,000 crore. Or, a total of Rs 27,000 crore. Yet, for the five years to 2011-12, the Congress declared revenues of Rs 1,662 crore. The BJP, the other national party, declared Rs 852 crore. Sahoo estimates parties are declaring no more than 10-20% of their incomes. If so, where do parties and politicians get the remaining 80-90% from? According to Sahoo, increasingly, they are not extracting rent from programmes that are politically beneficial like NREGA and PDS. Instead, he adds, they are moving to minerals and natural resources. "This is a form of corruption the common man stays more or less oblivious to," he says. The scent of such corruption hovered over the allotment of 150 coal blocks to private players between 2005 and 2010 for captive use, and their subsequent commissioning, aspects of which are currently being probed by India's apex investigating agency. "Rent-seeking has been rampant," says a former senior bureaucrat in the coal ministry, not wanting to be identified. It wasn't so always. When the coal industry began, it was distant from politics. But as it transited through its four distinct phases, that connection became progressively stronger, and culminated in the 2005-10 allotments. *PRE-NATIONALISATION (TILL 1973) * This is the period depicted in the first part of Anurag Kashyap's two-part film Gangs of Wasseypur. Coal mines were controlled by local mafias and business families, some of whom were asked by the Centre to step in after the British left. This arrangement had its problems, says a former official of Coal India Limited (CIL), not wanting to be named. "Miners were not selling to core users (namely, power, steel and cement), but to whoever could pay the most," he says. "Some would shut down the mine whenever it was not profitable for them. On the whole, there was a problem matching coal supply with the government's development plans and needs. Labour, too, was treated harshly." However, national politics accessed little money from mines, says Sahoo. "In some cases, like the Dhanbad coal mafia, the miners entered politics. But the reasons were mainly to protect their own local interests—by controlling the appointment of local bureaucrats, etc." "It was very local," adds a Union cabinet minister who has headed the coal ministry previously and spoke on the condition of anonymity. "Some politicians, local leaders used to take money from these mafia. But you did not have national leaders going down there." *NATIONALISATION (1973-93)* This began to change after Indira Gandhi nationalised coal—coking coal in 1973 and non-coking coal in 1974-75—and brought everything under CIL and its subsidiaries. According to AK Singh, a former general manager of Western Coalfields, a CIL subsidiary, coal was nationalised for three main reasons: "To exploit coal more scientifically and increase production; to curb unethical practices; and to take better care of employees and develop nearby communities." For some time, says Singh, the plan worked well. Production gradually rose from 70 million tonnes (MT), and stood at 431 MT in 2010. However, with nationalisation, the presence of politicians also increased. Singh also traces this to the rise of coalition politics. Buying and selling of MPs picked up, because of which parties' need for cash increased. Ministers began treating the PSU, says the ex-CIL employee quoted earlier, as "no more than their private colony." Posts of MD and chairman began to be sold. "This started in the late-nineties when two people with vigilance cases against them were made acting heads of coal PSUs," says a former CIL chairman. Singh explains the bureaucrat who pays, say, Rs 2 crore for a key post will need to recover it from the company. As will a company that is forced to pay, say, Rs 10 crore, to the minister. Ripple effects followed. For example, CIL and its subsidiaries began under-reporting production. Says the ex-CIL employee: "They would take out 15 MT and report only 10 MT. The remaining 5 MT would be sold in the open market, with proceeds distributed between the ministers, the management, etc." New ways to siphon off coal were found. Like through coal washeries. Indian coal contains 40-52% ash and needs to be washed. According to the ex-CIL employee, many senior managers set up washeries on retirement. Some would divert to the open market part of the coal that came to them for washing, and report it to the coal PSUs as ash. Another form of corruption was in sales. Employees of coal companies demanded payments from users, or users were willing to pay, for supply of good coal. "Whenever we complain about this, we are told we should stop taking coal from CIL if we are so unhappy with what we get," says a manager in the Avantha Group, not wanting to be identified. * RISE OF CAPTIVE BLOCKS (1993-2005) * Three amendments to the Coal Mine (Nationalisation) Act—in 1976, 1993 and 1996— saw the private sector return to coal mining. Private companies could not extract coal for sale to others, but they were allowed to own and mine blocks for captive use—to feed their power, steel and cement plants, and for coal gasification. Initially, the rule change did not evoke much interest among private players. Between 1993 and 2005, only 41 blocks were allotted— an average of about three a year. * EXPLOSION IN CAPTIVE BLOCKS (2005-10)* Between 2005 and 2009, 138 blocks were given to private players—an average of 28 a year. Two occurrences on parallel tracks converged to make coal a coveted commodity. One, the government initiated reforms in the power sector. A stampede into power generation ensued. The Planning Commission had envisaged the addition of 100,000 MW during the 12th plan period (2012-17). However, according to the Prayas Energy Group, an NGO in Pune studying India's energy policy, 193,000 MW of new capacity has been cleared and another 509,000 MW is in various stages of clearance. About 84% of this is coal-based. Two, in the second half of the decade, China and the rest of the world shifted gears, and commodities became more valued. In India, as CIL struggled to meet demand, coal imports increased. But these were at prices higher than the inelastic, government-set CIL prices. As global coal prices rose—from $56 per tonne in 2005 to $98 per tonne in 2008—companies' interest in captive blocks spiked. Murli Maloo, the executive director of Nagpur-based Murli Industries, a cement company that won a coal block during this period (which was later de-allocated), says captive coal works out 57-76% cheaper than coal from other sources. He says a captive block gives coal at Rs 1,200-1,400 per tonne. By comparison, it would cost Rs 2,800-3,000 in a CIL auction and Rs 5,000 a tonne for Indonesian imports. For a power plant, the cost per unit on imported coal doubled to Rs 4. "Before 1993, the government was asking companies to apply for blocks," says Govinddas Daga, the head of Central Collieries, a Nagpurbased coal company. "By 2006, this had changed." A November 2006 ad by the coal ministry for 38 blocks saw 1,421 applicants. In the absence of a bidding mechanism, allotments were decided by a 'screening committee', which was headed by the coal secretary, with representation from states and other ministries concerned. Discretion was embedded in the allotment process. "... the criteria are so broad that any decision can be justified," the Ashok Chawla committee on allocation of natural resources had said in May 2011. Choosing one winner from 10-50 applicants increased the importance of bureaucrats, ministers and politicians. The nature of political rent-seeking from coal expanded into the first of three new directions: discretionary allotment of blocks. "As the number of applications rose, the babus (bureaucrats) and ministers found juice in the process," says the head of a Nagpur-based coal company, speaking on the condition of anonymity. "If there are three companies in the running and one gets through to a secretary, the other two try and go even higher—to a minister. A parallel system of auctions started—which company would pay the most for a block. By 2006, every company that got a block had to pay for it." The second direction political rent-seeking expanded into was clearances. Before starting production, a company needs clearances from the coal ministry, environment ministry and the state where the mine is located. This process is rife with red tape and corruption. A former coal secretary, not wanting to be identified, says the environment ministry "holds files pending payment". Agrees a corporate lobbyist in a power company. Speaking on the condition of anonymity, he says: "At this time, an environmental clearance for a 100 MT coal block will translate into a rent of Rs 10-15 crore. This will rise by another Rs 4-5 crore if a forest clearance is also needed, or if the mine falls in land classified as 'no go'. "Where is this money going? Says the cabinet minister quoted earlier: "Mainly into private hands who might be giving part of it to the party." Thirdly, politicians are coming closer to the coal business, with their extended family having an equity or business interest. In this way, says a forest officer, "the distinction between politicians and industrialists is blurring." -- You received this message because you are subscribed to the Google Groups "Green Youth Movement" group. To post to this group, send an email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/greenyouth?hl=en-GB.
