Sibal jumped the gun: SC may well see Coalgate as a scam

Gyan Chaturvedi, a famous Hindi writer of this era, makes a very interesting point in the introduction to his 2004 book Marichika . He writes "jungle ke apne niyam hote hain aur wahan kissi tark ka koi sthan nahi hota (a jungle has its own rules and there is no space for any reasonable arguments to be made there)."

Nobody understands this much better than politicians operating in the jungle of politics. They rush to save their own skins and keep justifying what they had said earlier, despite evidence to the contrary. "My position is right because I had said so in the past," is the logic on which they operate. There is no scope for a "reasonable argument" there.

Telecom Minister Kapil Sibal's jubilant reaction to the Supreme Court's "opinions" on the Presidential Reference to it asking for broad-sweep clarifications on its policy of allocating natural resources is a very good example of the same. "We welcome the Supreme Court (SC) opinion. SC has confirmed what the government has been saying," Sibal said yesterday.

This comment came after a five-judge bench of the Supreme Court answered the questions it had been asked by the government of India on 12 April 2012. Among other things the government had asked the Supreme Court to clarify "whether the only permissible method for disposal of all natural resources across all sectors and in all circumstances is by the conduct of auctions."

This question had arisen in light of the Supreme Court judgment cancelling the licences given to 122 telecom companies in 2008, when A Raja was the Telecom Minister. The government had given out these licences, allegedly on the basis of the "first-come-first-served" (FCFS) principle rather than auctioning them, and thus causing a huge loss to the exchequer. That Raja may have played ducks and drakes with the FCFS system is another matter.

Did Sibal jump the gun with his interpretation of the SC judgement? PTI

The Supreme Court clarified that "Auctions may be the best way of maximising revenue but revenue maximisation may not always be the best way to subserve public good. Common good is the sole guiding factor under Article 39(b) for distribution of natural resources. It is the touchstone of testing whether any policy subserves the "common good" and, if it does, irrespective of the means adopted, it is clearly in accordance with the principle enshrined in Article 39(b)."

It is this paragraph in the suggestions made by the Supreme Court that got the politician in Sibal gloating and into the "I-told-you-so" mould. The government has maintained that auctioning natural resources is not always the best possible way to operate because it tends to drive up prices. For example, if coal is auctioned to the highest bidder, then power prices will go up. Hence, in lieu of the "common good," natural resources cannot always be sold to the highest bidder.

Let's see how strong this argument holds in case of the coal blocks allocation (Coalgate) scam. Between 1993 and 2011, the government gave away 195 coal blocks with total geological reserves of 44.8 billion tonnes - free - to private and government companies. An estimate of the total amount of coal present in a block is referred to as geological reserve. Due to various reasons, including those of safety, the entire reserve cannot be mined. The portion that can be mined is referred to as extractable reserve.

Of these, 115 blocks were given to companies which would use the coal that they produced from these captive blocks for the manufacture of cement and iron and steel, conversion of coal to oil and commercial mining. These blocks have geological reserves amounting to 20.53 billion tonnes of coal.

The manufacture of cement and iron and steel or commercial mining operations are "for profit" operations and cannot be termed as activities that are purely about "common good". Hence there was no reason for the government to give away these coal blocks for free. That is a clear interpretation that one can draw out of what the Supreme Court said.

Eighty coal blocks were given to companies for the manufacture of power. Of these 80 coal blocks, 53 blocks were given to companies for captive dispensation of power. These blocks had 10.66 billion tonnes of geological reserves of coal.

What this meant was that companies had to use the coal produced from the blocks they had been given to produce power to meet their internal needs. Hence a company manufacturing steel could use coal produced from its blocks to generate power needed to produce steel. The "free" coal blocks would allow them to produce power cheaply and thus bring down their costs and thus make higher profits from what they would have otherwise made. Again, the end result is a "for profit" operation and this cannot be categorised as "common good".

Hence, 168 out of the 195 coal blocks with geological reserves of 31.15 billion tonnes were allocated to companies supposedly in "for profit" operations. The remaining 27 blocks with geological reserves of 13.65 billion tonnes were allocated for production of power. Of these seven blocks had been allocated to ultra mega power projects. The companies which were given these blocks could produce power cheaply because they did not have to pay for the coal block. This can be categorised as a "common good".

Hence, common good is limited to around 30 percent of the coal reserves allocated under the government's policy of giving away coal blocks for free. Even this can be questioned given that all the seven coal blocks (with geological reserves of 2.6 billion tonnes) allocated to the ultra mega power projects are in the private sector. And no private sector company is in business to make a loss.

If Sibal had read the suggestions of the Supreme Court carefully enough he would have realised that Justice Jagdish Singh Khehar, one of the judges on the bench, does make the points I just raised above.

"When natural resources are made available by the state to private persons for commercial exploitation exclusively for their individual gains, the state's endeavour must be towards maximisation of revenue returns. This alone would ensure, that the fundamental right enshrined in Article 14 of the Constitution of India (assuring equality before the law and equal protection of the laws), and the directive principle contained in Article 39(b) of the Constitution of India (that material resources of the community are so distributed as best to subserve the common good), have been extended to the citizens of the country," Kehar points out.

Given this, it clearly means that 70 percent of the coal blocks given away for free should have been auctioned because there is clearly little "common good" involved there - unless we stretch the meaning of the term.

Does giving away coal to private companies constitute public good? Reuters

Judge Khehar also pointed out that "No part of the natural resource can be dissipated as a matter of largesse, charity, donation or endowment, for private exploitation. Each bit of natural resource expended must bring back a reciprocal consideration. The consideration may be in the nature of earning revenue or may be to 'best subserve the common good'. It may well be the amalgam of the two. There cannot be a dissipation of material resources free of cost or at a consideration lower than their actual worth. One set of citizens cannot prosper at the cost of another set of citizens, for that would not be fair or reasonable."

Khehar also clearly points out that even though the Supreme Court was saying that the auction of natural resources wasn't the right way to proceed always, but that did not mean that there should be no auctions at all. "Government should remain alive to the fact that disposal of some natural resources have to be made only by auction...A rightful choice would assure maximisation of revenue returns. The term 'auction' may therefore be read as a means to maximise revenue returns," the judge said.

The judge also makes it clear that in several situations giving away coal blocks for free wouldn't work. "If the bidding process to determine the lowest tariff (of power) has been held, and the said bidding process has taken place without the knowledge that a coal mining lease would be allotted to the successful bidder, yet the successful bidder is awarded a coal mining lease. Would such a grant be valid?... Grant of a mining lease for coal in this situation would therefore be a windfall, without any nexus to the object sought to be achieved," he said.

Thus a power company which is in the business of selling power at commercial rates could get an undue benefit because it had access to free coal blocks.

Another interesting point that the judge makes is that the man on the street should know why the decision has been taken in favour of a particular party. What this means in terms of the Coalgate scam, is that the government owes an explanation to the nation, as to why relatives of ministers in the government got coal blocks for free. It also needs to tell us is how did dubious companies with no previous experience in any business land up with coal blocks?

Kapil Sibal clearly jumped the gun while making the comments that he did yesterday. Guess, by now, he would have found time to read through what the Supreme Court had to say in totality. Given this he would understand that the underlying tone of the suggestions made by the Supreme Court is that the UPA government screwed up big while giving away coal blocks for free since they came to power in 2004.

Vivek Kaul is a writer. He can be reached at vivek.kaul@gmail.com


Updated Date: Dec 20, 2014 12:20 PM