New Delhi: On 17 August 2022, the Union coal ministry declared the Adani Group as the successful bidder for a 250 million tonne coal block in Madhya Pradesh’s Singrauli forests. The auction for the Gondbahera Ujheni East coal block was unusual. Adani Group was the lone bidder.
Documents reviewed by The Reporters’ Collective show the Adani group cornered the block even when the auction failed because the government had quietly changed the coal auction rules, making it easier for companies to grab coal blocks even in the absence of competition.
The documents reveal that the government has given itself the discretionary powers to allot coal blocks to lone bidders even when auctions fail to deliver competitive bids.
The rules also contradict the assertive claims of transparency made by the Narendra Modi government, which amid much hype, introduced new laws and regulations to auction coal blocks. Seven years later the promise of ending discretionary allocation and replacing it with fair competition are tossed aside when auctions fail.These rules have also undermined the spirit of the landmark 2014 Supreme Court order that struck down arbitrary and discretionary allocations of coal blocks, an order that annulled 204 such allocations by the previous UPA government that were dubbed by the media as ‘Coalgate scam’.
Records show the Adani group is not the only beneficiary of these discretionary powers the Union government has handed itself. The government has resorted to such discretion in at least 12 cases and allocated coal blocks to private companies after failing to attract competition. The firms that have bagged these blocks include Vedanta-owned firms, JSW Steel, Birla Corporation and other lesser-known companies.
In part one of the investigative series, The Collective revealed how the power industry lobby got the government to open up sensitive forest patches in Madhya Pradesh for coal mining. The lobby eyed two blocks in particular. Adani Group, a member of the lobby, was the lone bidder for one of the two blocks the government opened up after overturning years of advice from the Environment Ministry against such a move.
Part two of the series reveals how the government gives away coal blocks to private companies through a discretionary government allotment route when only a single bidder turns up for the auctions. The fire sale of coal mines comes despite the country not needing additional coal supply now, and having allocated enough coal blocks to take care of the country’s power requirements for the next decade.
“There is completely transparent auction process with an equal opportunity for every company registered in India to participate in the commercial coal mining auction held by the Ministry of Coal,” an Adani Group spokesperson told The Collective over mail. “There are no barriers such as financial and technical eligibility to prevent the competition.”
“We operate strictly within the Government’s auction regime and extant norms & regulations. The most technically and commercially competitive bidder is awarded the mineral blocks,” said a Vedanta Aluminium spokesperson.
Detailed queries sent to the coal ministry did not elicit a response despite reminders.
The commercial coal mining regime, ushered in by the Modi government in June 2020, has allowed coal block allotments to take place at its discretion, specifically that of a committee comprising secretaries of four government departments. The group of four secretaries, called the Empowered Committee of Secretaries, has powers to decide which blocks should be given away to the sole bidder and which should not be. But there is no publicly available criteria to show how the committee makes decisions.
The Singrauli coal block that Adani Group won was put up for auction twice – once in March 2021 and then in September 2021. On the first occasion, the block attracted a sole bidder, leading to the auction being annulled. Public records do not reveal the identity of this bidder. In the second attempt, Adani was the sole bidder. The government then referred it to the Empowered Committee, which decided to hand the block over to Adani Group at the cost the company had bid for, a process that undermined the principles of a good auction of public assets: get a healthy number of potential buyers and stop collusion (single bidders for auctions raise questions about the potential for collusion or for the market’s demand for the asset) to ensure the best price for public wealth.
This discretionary regime is a new version of the pre-2014 allotment method that the Supreme Court called “arbitrary”. The Comptroller and Auditor General of India (CAG) and the apex court had then flagged the loss of revenue to the government over its choice to not auction the coal blocks and instead allocate them through a government committee. BJP, which was then in the opposition, had dubbed it ‘coal scam’.
“The country needed to expand power production when the discretionary allotment process began in the 1990s. The country needed more coal and earning revenue from it was not a goal. The situation now is extremely different. We’re entering an era of surplus coal. There is simply no need for the government to give away blocks to private companies just because they could not attract sufficient competition,” Priyanshu Gupta, Assistant Professor at the Indian Institute of Management, Lucknow, told The Collective.
“It shows that the Ministry is desperate to sell off natural resources for whatever price it may get.”
The BJP-led Modi government, which rode to power on an anti-corruption wave, had drummed up the “coal scam” in its campaigns. Immediately after Modi’s ascension to power came the Supreme Court landmark judgement in August 2014 that quashed allocations for 204 coal blocks allotted over the years. It flagged the lack of transparency in these allocations: a “screening committee” had allotted the blocks without auctions.
By 2015, the government under Modi ushered in a new law to auction the 204 coal blocks through “transparent” methods. Blocks that were not among this list of 204 are auctioned under a separate law. Under this regime, the government would auction some blocks to private companies and allot some to government-owned ones. While there were still restrictions on private players bidding for coal blocks, these were completely done away with in 2020.
The government had in 2015 claimed that its auction regime would generate over Rs 3 trillion in revenue for the public exchequer. Over the years, the government kept chipping away at the terms of auctions making it easier for private companies to grab coal blocks at lower prices. It has done so despite its officials claiming that the country has a surplus capacity for the production of coal.
Eventually, less than five years after its claims of transparency, the Modi government reversed its stand and created a parallel allocation route for private companies through an Empowered Committee of Secretaries. This Committee was set up in May 2020. Coal blocks are once again being allocated by a group of bureaucrats with powers to decide which company can get a block and which cannot in case there is a single bidder. Since these are blocks with a single bidder, the earnings for the exchequer will by default be low, as confirmed by analysis from independent researchers. With this, it has undone the effect of the 2014 Supreme Court judgement.
The new loophole in coal allocations can make collusion easier for companies. In the past, as The Collective has shown, firms had to set up elaborate networks of shell firms to undercut competition while genuine potential competitors acted as dummy participants. The Coal Ministry and the CAG had flagged instances of bid rigging by collusion among competitors in the past. Now, experts The Collective spoke to caution, all a company has to do is ensure that it’s the only bidder at the auctions, to get the block it wants at the minimum possible cost to the company.
As shown in part one of the series, the Association of Power Producers lobbied to get the government to open up Mara II Mahan coal block in one of India’s most sensitive forest patches of Singrauli. Once its attempt was successful, only one of its members — the Adani Group — bid for the block. The Collective could not independently verify if the auction involved any collusion among the members of the association to kill competition.
“The premise of the whole coal scam in 2014 was that the government has lost a lot of money by giving away blocks without price discovery,” Nandikesh Sivalingam, Director, Centre for Research on Energy and Clean Air told The Collective.
“What has happened to the idea that coal should be auctioned in a transparent way? We are seeing that idea slowly unravel.”
The first tranche of coal auction under the Modi government generated excitement and saw competition among corporates for coal blocks.
“We are focusing on bringing transparency in allocation of natural resources including coal blocks,” then Home Minister Rajnath Singh said at a public event in January 2015. “We have been able to rebuild confidence and trust that is extremely important to revive investments and drive higher growth,” he said.
But in subsequent tranches, the number of competitors and consequently, the revenue generated for the government, went down.
In the first five tranches, the government put up 71 blocks for auction of which 31 were sold. As coal mine auctions refused to generate heat, Prime Minister Narendra Modi introduced commercial coal mining to free the coal sector from, what he described as, “decades of lockdown”. This was when the first wave of Covid-19 pandemic was ravaging the country.
Before Modi introduced commercial mining, only companies with a designated purpose for the coal they mined, such as to power their thermal power plant, were eligible to participate. Under commercial coal mining, the Modi government did away with all such restrictions on who could participate in coal auctions.
It also changed the bidding parameters. Under the Modi government’s previous coal regime, companies with captive power plants willing to pay the highest for a coal block would win. With commercial coal mining, “revenue share” became the parameter – referring to the percentage share of revenue generated from mining that the company was willing to share with the state government. The company willing to share the higher percentage of revenue with the state would win.
To sweeten the deal further, the government even lowered the minimum amount a company can bid – known as ‘floor price’ – in the first tranche of the commercial auctions.
Despite easing up thresholds and entry barriers, the response to auctions was lukewarm. Multiple coal blocks remained unsold and numerous others saw only a single company bidding for them.
To work around the single bidder problem, the government introduced “rolling auctions”, under which blocks that saw only one bidder would be placed for another round of auction.
Even before it had announced the commercial coal auction regime, the government had set up an Empowered Committee of Secretaries comprising Secretaries of the Departments of Coal, Petroleum and Natural Gas, Legal Affairs and Economic Affairs. One of its tasks was, “In case of single bid after successive rounds of auction for a coal mine, appropriate decision regarding allocation of mine.”
The auctions consist of two levels – technical qualification and financial bid round. Bidders are ranked on the basis of the initial offer they make in the technical bid round. The standard tender document says that for an auction to take place, a minimum of two participants have to qualify in the technical round. If there are less than two bidders, the auction is annulled.
However, the tender documents issued for the second attempt of auction for blocks that remained unsold the first time around do away with this minimum requirement. Now, only a single bidder can proceed to the second and their initial offer is accepted. The matter is referred to the Empowered Committee, which then decides whether to allocate the block or not.
On 17 August 2022, this Empowered Committee directed that the Gondbahera Ujheni East block should be allocated to MP Natural Resources Private Limited – an Adani subsidiary.
Adani bagged the block without any competition after promising just 5% revenue share. For comparison, in the first tranche of commercial auctions, the minimum revenue share for any bidder was fixed at 4%. Gondbahera Ujheni East was one of two blocks the committee handed over in August 2022 after repeated auction rounds failed to attract more than one bidder. The other block, Tokisud II, was allocated to a company called Twenty First Century Mining Private Limited.
These two are among at least 12 such cases where the government has handed over the blocks to the sole bidder over the last three years.
“Earlier we had a screening committee handing out blocks. Now you have an Empowered Committee. The work is the same but the name has changed,” Gupta of IIM Lucknow told The Collective.
With this allocation route, the country comes full circle back to the original problem that the Supreme Court and subsequent laws tried to solve: ensuring better price discovery.
An analysis by Gupta of revenue share bids made by bidders across four tranches of commercial coal auctions showed that the government’s revenue share plummeted as the number of bidders went down. In blocks that had sole bidders, the revenue share to the government was the least.
“If people are not interested in the coal blocks it obviously indicates low demand. Instead of waiting for the demand to pick up, the Ministry has chosen to give the blocks away to whoever comes knocking,” pointed out Sivalingam.
“We need approximately 800-900 million tonnes of coal per year currently. But if you have allocated coal blocks for around two billion tonnes then obviously there won’t be much demand,” he added.
How much coal India needs depends on electricity demand – 85% of all coal in the country is consumed by the power sector. Majority of India’s electricity, 75% to be precise, is generated from coal.
A Coal Vision 2030 document published by government-owned Coal India in 2018, noted that the blocks allocated by the government till 2017 were sufficient to meet India’s electricity needs by 2030.
However, the pandemic and global economic distress have led some to revise electricity needs. A paper published in 2023 on the country’s electricity demand by Aditya Lolla, Sivalingam, Gupta and Sunil Dahiya points out that after assuming a conservative estimate of electricity demand growth of 6% per year, the net demand for electricity by 2030 would require about 1200 million tonnes of coal. They point out that the government has allocated enough coal blocks to be able to produce 2,200 million tonnes of coal by 2030!
Previously, the Centre for Research on Energy and Clean Air has shown that the “capacity of already allocated coal blocks is around 15-20% higher than expected demand in 2030”.
The Coal Ministry is not oblivious to these facts. In March 2023, the Coal Minister told the media that India is poised to begin exporting coal by 2026.
Ministry of Coal responds:
“It is noted that there appears to be a gap in understanding the transparent process adopted by Ministry of Coal for auction of coal mines,” the Ministry said in an email sent to The Collective after the publication of the story.
The Ministry has not refuted a single fact reported in the two-part series on coal mine auctions. Its full statement has been uploaded on our website.