Coal Block De-allocations: The Implications & Challenges

The coal block allocation scandal, or the Coalgate, as it is popularly known; garnered international media attention when it came to light after the CAG office accused the Government of India of inefficiencies and irregularities in the process of allocation of coal blocks during 2004-2009. Coal is a precious natural resource and hence, coal blocks must be allocated to organisations following the process of competitive bidding. However, the then government chose to allocate these blocks in an arbitrary manner to various public and private enterprises. As a result, these companies paid much less than they might have otherwise, resulting in a massive loss of revenue to the state exchequer and windfall gains to the enterprises. Deepening the impact of loss to the government, it emerged that many companies had failed to develop their coal-fields after winning licenses without proper bidding. While the initial CAG report only talked of inefficiencies in the process, the question of corruption and bribery being involved came to dominate the discussion with the course of time. There was tremendous public outrage and anti-corruption demonstrations all over the country with opposition parties demanding the resignations of several ministers and authorities allegedly involved in the same, including the then Prime Minister, Dr. Man Mohan Singh.

Recent developments:

In July 2014, the Supreme Court of India set up a special CBI court to try cases arising from coal block allocation scam on a day-to-day basis. On 24th September, the Supreme Court cancelled 214 out of 218 coal blocks allocated since 1993 to steel, cement and power companies. Apart from the cancellation, the operational mines will also have to pay a penalty of Rs. 295 for every tonne of coal extracted since they commenced operations. For all the de-allocated coal blocks, the government is free to hold auctions or give them away to Coal India. The operational coal blocks have been given six months to wrap up their operations, after which these blocks will be handed over to Coal India. However, the power producers would not face a disruption in their supplies as Coal India would continue to provide coal to them.

Economic implications of the ruling:

1. Impact on the banking sector: