Attorney general G E Vahanvati has advised the government to cancel coal block allocations to private firms since 2005 if these have not been converted into mining licenses following statutory clearances, sharpening the worry in the ruling coalition of blanket cancellation and its political and economic fallout as in the 2G telecom scam.
"I have taken up the matter with the government. I have told them about my views. It is under consideration. By Wednesday, I will inform the court about the government's decision," the AG on 09-01-2014 told a bench of Justices R M Lodha, Madan B Lokur and Kurian Joseph, which is monitoring CBI probe into alleged irregular allocation of coal blocks.
The decision of the government will have direct repercussions for 26 private allottees. Although they have not got mining licences, these entities, some of them known for their political clout, have benefitted hugely from the allocations.
Of the 46 coal blocks allotted to private parties since 2005 under Congress-led UPA regimes and which are currently under the scanner, the government has already de-allocated 15. Of the remaining 31 allocations, two have been granted mining lease by states, while in three other cases, prospecting licence has been given.
The fate of allocations has hung in balance since the Comptroller and Auditor General in its August 2012 report estimated that the allocation of 57 coal blocks to private companies from 2005 to 2009 without competitive bidding resulted in a loss of Rs 1.86 lakh crore to the exchequer.
While the AG's offer may help Congress feel that it has put the lid on the politically sapping "coal scam", sections in the government remain concerned that the SC may choose to scrap all allocations, especially those made since 2004 when UPA-1 mooted auctions and the then coal secretary warned of windfall gains to private operators.
"The AG clearly restricted himself to 26 allocations which have not been converted into licences, but the ball remains with the SC," a government official said.
Beginning 2004, a total of 67 coal blocks were allotted to private operators. CBI is reviewing allocations from 1993-11 during which period 195 coal blocks - both private and public sector - were allotted. Of these 39 were allocated prior to 2004, when UPA-1 came to office.
Official sources said if the court followed through its stern stance when it observed that even large investments in infrastructure could not be a reason to set aside illegalities, the fallout for the economy - and the consequently the political fortunes of UPA-2 - could be crippling.
A cancellation of allocations on the lines of the 2G allocations where the SC scrapped 122 licenses will prove a death blow to the government's efforts to meet even a modest 5% growth target for 2013-14, a bare minimum in an election year. Officials felt whole sale cancellation will be shred fragile investor confidence and irreparably set back power generation targets.
On Thursday, to a question from the bench about the allocation procedure, the AG said it could have been done in a more publicized manner by framing appropriate rules keeping in mind provisions of Mines and Mineral (Development and Regulation) Act and Coal Mines Nationalization Act.
Though the court commended the AG and his team of junior lawyers for their methodical approach, it did not mince words about the inability of the government to achieve the objective for which the entire process of privatization of coal mining was started. The AG had said coal mines were allotted to private parties for setting up power projects to improve the energy scenario in the country in the early 1990s.
The bench said, "Power is essential for boosting industry and for giving electricity to homes. But after 20 years of privatization, power is not available to 50% of houses in the country. So what did we achieve?"
It added, "The Centre has repeatedly taken the stand before the court that the Centre's letter for coal allocation was not a bankable document and that it conferred no legal right to the allottee to start mining. If it is not enforceable, then why is it taking so long for the government to cancel it?"
The AG said, "I am waiting for the (Centre's) response. I have a point of view, which I have communicated. It is not that they will accept my view."
The AG too was taken by surprise by the January 1 letter from the Maharashtra government to the Centre demanding cancellation of three coal block allocations - to Chaman Metallics' sponge iron plant in 2007, to Sunflag Iron and Steel and Dalmia Cement in 2009 and Maharashtra state mining corporation to supply coal to cement, iron ore and SSI units in Maharashtra in 2007 - in which mining lease is yet to be granted.
The Congress-NCP ruled state said, "It is of the considered opinion that in the cases of coal block allotment to private companies through the screening committee route, where the government of India has given approval under Section 5(1) of the MMDR Act but the mining lease has still not been executed, all such cases should be put to auction by Competitive Bidding of Coal Mines Rules, 2012.
"In case it is not possible to withdraw the sanction given under Section 5(1) of MMDR Act as the party has invested in the downstream project, then in such cases, the ministry of coal should evolve a system of collecting premium before the execution of mining lease with such allottees on the basis of premium which accrues from auction of similar coal mines."
The AG told the court that the decision to open up coal mine allocation to private parties was taken in 1993 to generate adequate power to improve industrial output in core sectors - iron, cement and fertilizer - to rev up a downcast economy.
On hindsight, one could always say that coal block allocations could have been done in a different way, but right from 1993, no state had ever objected to these allocations despite having the knowledge that the mineral could be used in another state, the AG said.
But the bench said, "Even if there was a certain procedure for allocation, the considerations had to be objective. Development and regulation of coal mining had to be result oriented. The mode and manner in which the exercise was done conveys that something had gone wrong."
The AG agreed. "Something has gone wrong. One question could be, did we achieve was we wanted to achieve," he said while presenting a tabulated chart showing the absence of protest from states.