Coal Block Allocation: Govt Ignored State Entities in Favour of Pvt Firms With 'Questionable' Backgrounds, Alleges EAS Sarma

EAS Sarma, former secretary to the Government of India, has questioned the Centre's preferential treatment towards private companies while ignoring state entities. This happened, as per Sarma, even when the private companies were under investigation by Central investigative agencies like the Central Bureau of Investigation (CBI). 

One of these companies under investigation is Bhushan Steel Limited (BSL), whose locations were raided by the Enforcement Directorate (ED) in connection with a bank fraud of Rs 56,000 crore. While the raids are recent, the RBI identified the company as a 'bad loan' entity as early as June 2017. Despite that, two highly valuable iron ore blocks were issued to BSL in Odisha. 

While the Ministries of Mines & Steel have allotted valuable iron ore mines to private companies with questionable backgrounds, the same two Ministries have been "extraordinarily obstinate in the matter of allotment of one single captive iron ore block to Rashtriya Ispat Nigam Ltd (RINL), a CPSE, a stance that has eroded the finances of RINL over the years." Such was the situation that the RINL had to take financial assistance of Rs 900 crore from the Jindal Group. The Finance Ministry did not provide RINL with liquidity support. 

In his letter to cabinet secretary Rajib Gauba, Sarma has requested "the CBI and the ED to investigate the allotment of iron ore blocks to BSL." 

Here is the full text of the letter: 

To

Shri Rajiv Gauba

Cabinet Secretary

Govt of India

Dear Shri Gaubas,

I refer to a press release from the Enforcement Directorate that the “Directorate of Enforcement (ED) has conducted search and survey operations on 13.10.2023 at 30 locations in Delhi NCR, Haryana, Kolkata, Mumbai and Bhubaneswar, as part of investigation under PMLA, 2002 against the Promoters of M/s Bhushan Steel Limited (BSL) in connection with a Bank fraud of Rs 56,000 crore”. The Enforcement Directorate, vide its Press Release dated 16-10-2023 corroborated this. By any stretch of the imagination, the amount covered by this alleged fraud is huge!

The Central investigation agencies should go all out to investigate this fraud and bring all those responsible to book.

What perplexes me is that, according to old news reports, the RBI identified BSL as a “bad loan” company as early as June 2017. The Central investigating agencies would have initiated investigations against the company much earlier. 

Still, according to a letter dated 24-6-2017 from the Odisha Govt/ Ministry of Mines (copy enclosed), it is clear that an e-auction of Kalamang (West) iron ore block in Bonai & Barbil Tehsils in Sundergarh & Keonjhar districts was conducted on 18-5-2017 and a letter of intent was issued to BSL on 24-6-2017. In another similar auction, the Netrabandha Pahar iron ore block in Baladih, Koira Tehsil, Sundargarh district in Odisha was also allotted to the same company, BSL on 19-5-2017. 

How did the Ministries of Mines and Steel allot such valuable iron ore blocks to a company whose alleged involvement in a PSU bank fraud was actively under investigation? How did those Ministries allow BSL, in the first instance, to bid in auctions without checking the background with the other wings of the government, including the RBI and the ED?

The two iron ore blocks taken together contain 174 million tonnes of ore, and their potential value at prices prevailing in the global market would be around USD 17 billion. To hand over such a valuable resource to a company that defrauded PSU banks is beyond any explanation. 

The Kalamang (West) and Netrabandha Pahar iron ore blocks are in the Sundargarh and Keonjhar districts of Odisha, located in areas notified under the Fifth Schedule to the Constitution were two important Central laws, namely, the Panchayats (Extension to the Scheduled Areas) Act [PESA] and the Forest Rights Act (FRA) are applicable. Those laws make it mandatory for the authorities to hold prior consultation with the local tribal Gram Sabhas before proceeding to auction the blocks. This position was confirmed by the apex court of India in their judgement dated 1-7-2013 in the well-known Vedanta bauxite mining case of Odisha. 

Apparently, neither the Odisha government nor the Union Mines Ministry cared to fulfil such an important mandate while subjecting these two iron ore blocks to auction. This speaks volumes of the shoddy manner in which valuable iron ore and other mineral blocks are being auctioned.

While the Ministries of Mines & Steel have been overenthusiastic in allotting valuable iron ore mines to private companies with questionable background, the same two Ministries have been extraordinarily obstinate in the matter of allotment of one single captive iron ore block to Rashtriya Ispat Nigam Ltd (RINL), a CPSE, a stance that has eroded the finances of RINL over the years, weakening it in terms of its perceived value at a time when the Dept of Investment and Public Asset Management (DIPAM) is in an undue hurry to privatise RINL, along with its prime land of around 20,000 acres, its valuable machinery and thousands of its highly talented employees, in the process, violating the provisions of the earlier land acquisition law under which lands were acquired decades ago for a “public purpose”, a term defined to imply an undertaking wholly owned by the government. DIPAM and the Ministry of Steel seem to be deliberately weakening RINL by refusing to provide it a captive iron ore, to enable them to sell the CPSE to a chosen private bidder, to whom the two Ministries have separately allotted captive iron ore blocks, so that RINL may be sold to that private company at an unconscionably low price. 

The impression that the Centre is resorting to every means to weaken RINL to be able to hand it over to a chosen private group for a song has gained further strength when RINL, with two senior officers of the Ministry of Steel sitting on its Board, chose to sign an MOU with Jindal, a private steel company, to outsource its third blast furnace unit for revival in return for financial assistance to the extent of a mere Rs 900 crore, which is a pittance compared to what the Ministry of Finance could have given to RINL as a working capital loan to tide over the situation. This is particularly significant as the same Finance Ministry has had no hesitation whatsoever in providing a mind-boggling amount of Rs 2,00,000 crore over a 5-year timeframe by way of open-ended subsidies to profit-earning private companies under the so-called “Production-Linked Incentive (PLI)” scheme. Apparently, the Centre is more than willing to subsidise private companies but not willing at all to help a valuable CPSE like RINL when it needs it.

I request the Centre to ask the CBI and the other investigating agencies to examine the impropriety encompassing the entire chain of events, starting with the Centre’s outright refusal to allot a captive iron ore mine to RINL, allotment of two highly valuable iron ore blocks to BSL knowing well that the company had been under an investigation for huge bank fraud and forcing RINL to go with a begging bowl to the Jindal Group for meagre financial assistance of Rs 900 Crores in exchange for reviving its blast furnace unit when other CPSEs in the steel sector could have provided technical help and the Finance Ministry could have provided liquidity support to RINL.

I have already requested the CBI and the ED to investigate the allotment of iron ore blocks to BSL but the Centre needs to give its nod to those investigating agencies conducting an investigation covering all the cases cited above in a holistic manner.

Para 4.14.4 of the National Steel Policy of 2017(NSP17) states, “The CPSEs will also be encouraged to take a leadership role in the development of the steel industry“. The stance adopted by the Central government towards RINL runs totally counter to the spirit of the NSP2017. 

I hope that you will ensure that an investigation on the above lines is taken up the investigating agencies without being influenced by external factors.

Regards,

Yours sincerely,

E A S Sarma

Former Secretary to the Government of India

Visakhapatnam