Demystifying the “Scam” in the Captive coal sales

Demystifying the “Scam” in the Captive coal sales

On the 3^rd October 2013, the English language “The Hindu”[1] broke the story on selling of coal from captive mines for profit. While the media has remained uncharacteristically mellow on what would amount to another “Scam” or a second “Coal gate”; it does raise significant concerns on the concept of captive coal mining just when the dust on the “Coal Gate” seemed to be settling a bit. Before we join the media and the opposition parties in the mob lynching process, let us understand the background of the case.

Firstly, Indian government allocates “Captive” coal mines to certain companies so that they can mine and supply specific plants with coal from those mines. Under the Indian laws, they are not permitted to sell coal as only government companies can sell coal.

Secondly, the Indian coal is usually low grade; which implies that it needs to be washed to remove impurities. Apart from the Washed coal, the process also creates byproducts viz. “Middlings” and “Rejects”. The Middlings and Rejects, though lower grade than washed coal, are useful for power generation (on par with E and F grade coal supplied by Coal India).

Certain companies who had been allotted coal blocks for captive purposes were selling these Middlings and Rejects with government permission even though commercial sale of coal is not legally permissible. The Coal Ministry admitted in the parliament that it had permitted Tata Steel to sell over 9 million tonnes during 2009-2012. With permissions to sell 3mtpa, Tata group has the option to sell 40% of its 7 Mtpa production. Jindal Steel & Power Ltd (JSPL) was permitted to sell ~3mt  of “Middlings” during similar period apart from others.

With the permission to see these middlings and rejects, the government has defacto granted a permit to sell coal to these so called “Captive” miners using legal loopholes. Further, it may be noted that this commercial sale of Middlings and rejects infact gives the “Captive Miner” the incentive to run the coal washery inefficiently. Low recoveries of washed coal would result in higher tonnages of coal middlings and rejects – creating a large sustainable coal business.

To be fair, some of the media articles on the subject are quite informative, especially the Hindu article by Shalini Singh which quite eloquently covers the details of the matter. You will read the innumerable articles from the media on the subject and arguments and counterarguments from opposition and the ruling parties; but beneath all the cacophony about the “Scams” and “Coalgate”, It is as simple as this, the law doesn’t allow sale of coals, so a loophole has been found – selling coal in the name of rejects and middling. And the government actively permitted it.

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[1] Largesse for companies from backdoor sale of captive coal, The Hindu, October 3,  2013