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Delving into India’s Coalgate Scandal

Delving into India’s Coalgate Scandal

The media has dubbed it “Coalgate” after the infamous Watergate scandal of the 1970s, and the alleged multi-million dollar scam, still to be proven in a court of law, epitomizes all that is wrong with Indian polity.

Not only has it claimed the resignation of one minister and involved Indian Prime Minister Dr. Manmohan Singh, the coal controversy also dragged in one of the biggest names in Indian corporate circles. Kumar Mangalam Birla is chairman of the Aditya Birla Group, which helps run Hindalco, one of India’s biggest aluminium and copper producers.

The so-called Coalgate is all about suspicion around the allocation of huge chunks of coal rich mines (exclusively reserved for public sector units) to private companies, when Dr. Singh also held the coal portfolio in 2005.

About 18 months ago, India’s central auditor had released a report, containing the major red flag that these coal blocks had been given to private companies on a case-by-case basis in a process that “lacked transparency and objectivity.” Normally, in such cases, the mines are to be auctioned to the highest bidder.

The auditor’s logic was that private companies stood to earn nearly $30 billion USD by selling the coal, so the government could have boosted its revenue by going through a bidding process for the allocation of mining licenses. Why, then, the case-by-case process?

That was enough to arouse the opposition into demanding Dr Singh’s resignation, something that it has not let up on so far. And for nearly two years, the controversy kept rearing its head in the Indian media, even as the Central Bureau of Investigation (CBI) continued to probe the allegation.

Related article: Coal’s Dirty Little Takeover Secret

The first breakthrough came in mid-October, when the CBI named Mr. Birla, one of India’s richest industrialists, in its First Information Report (FIR), which is similar to a preliminary investigation. The FIR also named former Coal Ministry Secretary P C Parakh. This was a big deal, as almost never in India’s history has such a major corporate player been named in a case of this kind.

The CBI’s contention was that the Talabira coal block in India’s eastern state of Odisha was allocated out of turn to Hindalco for its aluminium plant. In 2005, the Indian government had decided the Talabira 2 and 3 blocks in Odisha should be given to the state-run Neyveli Lignite Corporation, but had then allotted them in favor of Hindalco.

In turn, Parakh retaliated, arguing that if he, the former coal secretary, is to be accused of conspiracy, then the Prime Minister Singh should also be among the accused, since he had approved the revised decision.

So what happened after former Coal Ministry Secretary P. C. Parakh said that Prime Minister Dr. Manmohan Singh ought to be among the accused? There was mild chaos within government. Ministers of the ruling Congress party, India’s Planning Commission deputy chief, and renowned economist Dr. Montek Singh Ahluwalia criticized the CBI for having named Mr. Birla in the FIR, claiming that neither the Prime Minister nor Mr. Birla should be accused of wrongdoings.

Mr. Birla himself dismissed the charge. Last week he met the Minister of Finance, P Chidambaram, and then told the media that his company had done no wrong.

The Prime Minister’s Office has too rejected the charges of criminality in the controversial allocation of coal block to Hindalco, saying that Prime Minister Singh had approved this case on the basis of “merits.”

The PMO said the proposal had not been rejected in favor of Hindalco at the cost of PSU Neyveli Lignite Corporation. Those supporting the Prime Minister insist that he had taken the decision based on the facts placed before him, and that was that. The PMO also acknowledged that the final decision on the allocation “differed” from the earlier recommendation of the screening committee. “This was done following a representation received in the Prime Minister’s Office from one of the parties, which was referred to the ministry of coal,” the PMO announced in a statement. The PMO also added that the CBI was free to probe the case.

The CBI does not seem to be giving up, having filed a total of 14 FIRs since “Coalgate” began. It is the 14th that relates to the alleged illegality in letting Hindalco access 15 percent of the coal block deposits in Odisha.

Related article: IEA Says Coal is Still the Fuel of Choice

The unsavoriness of this situation apart, one question begs an answer: How much of an impact will any “de-allocation” have on India’s economy? Of the 142 blocks that have been allocated since 2004, only one has commenced production. Among the five companies that have been charge-sheeted by the CBI, not even one is producing coal, so analysts think that Coalgate will not have much of an effect on supply and demand on the coal front.

But the bad press on the way business is conducted in India has already had some impact. Now, after a well-known industrialist has been named to the FIR, along with ministers and bureaucrats, it’s a nervous corporate India watching from the sidelines, wondering who is next in line.

By. Sohrab Darabshaw




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