A decade ago, businessman-cum-politician Naveen Jindal leapt into the public imagination when the Supreme Court endorsed the right of the common man to hoist the national flag any day of the year. It has been the calling card of the Congress MP from Kurukshetra ever since, one he has used to good effect. He has earned other sobriquets along the way—young business tycoon, lover of polo and property, man of tradition (even if it means defending khap panchayats in his home state, Haryana), and a card-carrying member of the ‘young turks’ club.
This is set to change—dramatically. As a prominent Congress politician, Jindal is now being seen at the heart of Coalgate, wherein private companies leveraged political and bureaucratic connections to corner lucrative coal blocks for captive use. And with as many as 70 such captive coal blocks not having come into production, it’s apparent that hardly any benefit has accrued to the country and the common man either through cheap power or controlled prices of steel or cement. Observers across the spectrum are now calling it a test case of ‘crony capitalism’ in India.
Naveen Jindal’s $3.5-billion Jindal Steel and Power Ltd (JSPL), wholly or with other companies, has access to coal from nine captive blocks spread across four states—Chhattisgarh, Jharkhand, Madhya Pradesh and Orissa—with estimated reserves of a mammoth 2.81 billion tonnes. Four of these blocks are now under scrutiny for non-operation. JSPL made $723 million in profits in 2011-12.
As CPI(M) leader Tapan K. Sen points out, despite the private sector having been allocated a large number of captive blocks, it is still the state-run Coal India Ltd (CIL), with an estimated reserve of 76 billion tonnes, which is meeting over 95 per cent of the thermal power generation requirement in the country. Planning Commission member B.K. Chaturvedi concurs that captive blocks “have done very badly. Our expectation was that captive blocks would generate 104 million tonnes of coal during the 11th plan. But they could generate only 36-37 million tonnes, making it difficult to bridge gaps in production.”
On his part, Naveen, the youngest scion of the diversified $17-billion OP Jindal Group, protests that he lobbied for allocation of coal blocks in his personal capacity and not as a politician. In an e-mail response, a JSPL spokesperson says that Jindal “at all points of time tries and maintains that his interests don’t overlap and avoids conflict of interest”. However, given that acceptable norms have been found to be lacking in the coal and mining sector, this will always be tough to justify. Especially since a letter dated June 22, 2002, written by Orissa chief minister Naveen Patnaik to then minister of state for coal Ravi Shankar Prasad seeking allotment of the Utkal B-1 block in the Talcher coal field to JSPL clearly points to Jindal not being above seeking political patronage.
“There is nothing wrong with lobbying,” says former petroleum secretary T.N.R. Rao, “unless there is under-the-table payment. Of course, there is considerable nepotism and crony capitalism as everybody who gets a block has political backing. As you have never had any transparent norms, there is no way to judge the pre-qualifying criteria.”
The problem lies in the fact that the power generated with coal from captive mines, which costs around Rs 400 per tonne, is being sold at a spot rate of Rs 4.50-5.0 per unit, far from the affordable power the country seeks. And it’s not JSPL alone which is at fault here; the government is equally to blame. That could explain the power ministry’s internal observation on July 16, 2012, (which has been viewed by Outlook) that despite having requested the coal ministry to “advise all coal block allocates to participate in the bids for sale of power from end-use projects as per guidelines of the ministry of power or face cancellation of coal block allocation”, the coal ministry chose to remain “silent on incorporating the condition”. It was only after the brouhaha erupted that the ministry very reluctantly agreed to enforce the norms that would require coal block owners to sell cheap power. Now tariff-based bidding by the power companies has been incorporated in coal block allocation.
As for JSPL, it claims that its subsidiary Jindal Power Ltd “approached a large number of state electricity boards across India, north, south and west, from 2002 to 2005. None of them showed interest to sign the PPA (power purchase agreement)”. The fact, however, is that after the Electricity Act, 2003, the electricity market has been opened up, and all power generators are allowed to sell power directly to sebs; discoms are now required to buy power through competitive bidding. Why then should JSPL be finding few takers for its power except during peak hours, especially with many states grappling with power shortage? Former power secretary Anil Razdan provides the answer: “At their cost, the PPA was probably not viable (the discoms usually go for the lowest tariff bid).” In effect, there are always ways and means not to sell your power at a low cost, especially when you can sell it at a 100-200 per cent higher price during periods of shortage.
It doesn’t help Jindal’s case, though, that many other of his firms’ violations have come to the fore in recent years. Last year, the Union ministry of environment and forests (MOEF) withdrew the permission granted to Jindal Power for the construction of a 2,400-MW power project in Chhattisgarh for proceeding without getting environment clearances. “It is full of violations of all kinds, including implicating people in false cases,” says R. Sreedhar of Mines, Minerals and People, an NGO working in the mining areas.
However, Jindal isn’t the only private power player to indulge in such tactics. As one senior bureaucrat in the coal ministry admits, there isn’t possibly one case where some political pressure—and in many cases bureaucratic favour—has not swung the decision on coal allocation. This is borne out by the fact that the majority of the allottees—including Anil Ambani’s Reliance Energy—succeeded in getting the rules bent, as the office of the Comptroller and Auditor General (CAG) of India has pointed out in its report.
In the case of the Sasan coal mines in Madhya Pradesh—where production began in a very timely manner recently, thus escaping the ongoing probe—the mine plan was changed from 12 mtpa for 25-30 years to extract 20 mtpa in less than 25 years. Given a reserve of about 350-360 million tonnes, “this way, they created a surplus,” a senior coal ministry official points out. Coal ministry sources claim that though the policy on allotment of surplus coal from captive mines was made and approved by the minister in 2011, it was “held back at the insistence of the pmo”. Retracing the chain of events, officials claim that the Empowered Group of Ministers made changes at every turn to suit Reliance Energy, including allowing it to bid and bag a second ultra mega power project without indicating the source of coal.
Goaded now by Opposition pressure to act on the adverse CAG report which has put the notional loss to the exchequer due to coal sector anomalies at Rs 1.86 lakh crore, as many as 64 cases have been referred to the CBI for investigation. Further action is being mulled after the inter-ministerial group (IMG) submits its report, say coal ministry officials.
It’s ironical that the coal ministry claims ignorance on many such matters, including change in the management of the firm that was allocated the captive block. Perhaps it’s not surprising, given the powerful political and business links at play. Drawing a parallel between the mining sector and the defence forces, coal expert S.K. Chowdhary says that we need to have a strong padlock in place and put the key in able hands. Whose hands, that’s a moot question.
