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The CAG alleged serious infractions of corporate governance standards by Panem Coal Mines Ltd, a JV between Punjab State Power Corp. Ltd (PSPCL) and EMTA. Photo: Getty Images
The CAG alleged serious infractions of corporate governance standards by Panem Coal Mines Ltd, a JV between Punjab State Power Corp. Ltd (PSPCL) and EMTA. Photo: Getty Images

CAG, CBI scrutinize EMTA’s mining deals

CAG submitted a critical report in Punjab legislative assembly on Friday, while CBI is probing Karnataka EMTA Coal Mines

New Delhi: Coal-mining contracts, struck by joint ventures (JVs) that West Bengal-based EMTA Group has formed with public sector units in two other states, have come under the scanner with the national auditor submitting a report critical of one and the Central Bureau of Investigation (CBI) starting a probe of the other.

The Comptroller and Auditor General of India (CAG) submitted a critical report in Punjab legislative assembly on Friday, while the CBI is investigating Karnataka EMTA Coal Mines.

These contracts, under which a mine developer and operator (MDO) is appointed, were allegedly skewed in favour of EMTA.

While the qualification criteria were tweaked, no benchmarking was done for the coal’s production cost, resulting in such contracts being awarded at rates far higher than the industry average.

Also, since any increase in fuel prices automatically led to higher power tariff, the joint ventures and private partner profited at the expense of consumers.

The National Democratic Alliance (NDA) government, which is seized of the issue, has drawn up a template for appointing a MDO which is being handed over to state governments along with the allotment order to avoid such instances. This comes in the backdrop of the recently passed The Coal Mines (Special Provisions) Bill, 2015 which allows for commercial mining.

Also, for those blocks awarded to the states, the MDO will be appointed to carry out mining operations.

EMTA’s other tie-ups were with the state power utilities of West Bengal, Jharkhand and Damodar Valley Corporation (DVC) for developing a total of 10 captive coal fields with reserves of around 900 million tonnes (MT).

The CAG alleged serious infractions of corporate governance standards by Panem Coal Mines Ltd, a JV between Punjab State Power Corp. Ltd (PSPCL) and EMTA.

“Though the tenders invited for selecting JV partner were full of ambiguity, yet PSPCL did not consider the desirability of inviting the bids afresh despite expert opinion," the CAG report said.

“Rates for supply of coal were based on CIL (Coal India Ltd) rates instead of being based on production cost plus profit."

“The structure of share capital was not followed as per agreement. Partnership firm was allowed to convert into a company and Panem was allowed to book expenditure incurred by EMTA without verification. The mining operations were sub-contracted to EMTA. There was delay in commencement of mining activities; washery and railway siding were not installed by JV partner, EMTA. Supply of entire mined coal as per its quality was not assured," the CAG report submitted to the Punjab assembly said.

Similar practices were followed in Karnataka. The CBI has filed a first information report (FIR) against officials of Karnataka EMTA Coal Mines, the JV between Karnataka Power Corporation Ltd (KPCL) and EMTA Group.

Mint reported on 5 September 2014 about such contracts.

“It is alleged that the officials of state public sector units (SPSUs) who had been allocated the coal blocks had shown undue favour to the joint venture partner entrusted with the work relating to mining of coal from the allocated coal blocks. It is further alleged that the accused had deliberately ignored and overlooked the condition of joint venture relating to certification of the quality of the coal by an independent inspection agency, thereby causing huge undue pecuniary advantage to the private partner," the CBI said in a statement on 19 March.

Coal field allocations and ensuing joint ventures have been controversial since the CAG said in a report in August 2012 that the national exchequer had suffered a loss of 1.86 trillion because of a flawed allocation process. The CBI is probing the allotments.

In September last year, the Supreme Court cancelled 214 coal mining permits awarded to companies, terming their allotment arbitrary and illegal after the CAG report. The apex court also took exception to SPSUs forming joint ventures with private companies and handing over mining operations to the latter as they were in violation of the existing mining laws of the country.

“Fortunately, not only the states, but also the businesses are aware that we mean business. Irrespective of the CBI investigation, we should now be clear in our minds about what we are trying to do. And if someone is trying to fool himself, then only he will have to pay the price. We are clear that these are the Supreme Court directives, this is how we have evolved," said India’s coal secretary Anil Swarup.

Interestingly, this seems to be the norm for EMTA Group operations, formerly known as Eastern Mineral and Trading Agency, which on its website describes itself as the pioneer of captive coal mining in the power sector.

“This has been the typical modus operandi followed by several states and firms such as EMTA," said a government official, requesting anonymity.

DVC EMTA Coalmines Ltd, the joint venture formed by state-owned power generator DVC and EMTA, converted from a partnership into a joint stock company without DVC being aware of the development, Mint reported on 11 July 2013. The rights to mine the mineral vest in this company. The title to the land that has been acquired for developing the mines vests with EMTA. However, the companies law doesn’t allow a firm to be a successor entity of a partnership.

“We understand that all the replies against queries of CAG have been given by PSPCL," an EMTA spokesperson said in an emailed response. “So far the investigation by the CBI, we can simply say that all the questions/queries of the CBI have been duly clarified by KECML."

A message left for M. Maheshwar Rao, managing director of KPCL, in his office and on the cellphone of Anirudh Tewari, Punjab’s power secretary, remained unanswered till press time.

The two rounds of coal block auctions have fetched the government 2.09 trillion from 33 blocks, giving credence to the national auditor’s claims that allocation of mines over the years had caused substantial losses to the national exchequer.

In addition, electricity consumers will get a tariff benefit of 96,971 crore.

The government aims to auction or allot 110 coal mines. Of these, 65 will be auctioned and 45 allotted to state-owned firms.

Gaurav Mishra in New Delhi contributed to the story.

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