A rose by any other name is still a rose; an illogical act by any other name is still an illogical act.
The recent decision of the Supreme Court to deliver coal black justice raises a lot of questions. The judgment, very simply, is as follows. The SC has ruled that 214 of the 218 coal block allocations made since 1993 were arbitrary and illegal and hence, are cancelled; those who operated these cancelled mines over the last 20 years will now have to pay a fine of Rs 295 per metric tonne. Estimates are that to date, about 302 million metric tonnes (mmt) of coal has been produced by these bad and illegal operators and therefore, about Rs 8,900 crore is owed to the government.
How logically valid is the legal judgment reached by the three honourable and learned SC justices? The short answer: not very, because the judgment, in my not so learned opinion, is flawed on several important dimensions.
At a seminar on “Financing for Economic Growth” held at Gandhinagar on September 25, I opened my remarks by stating that it was a waste of time by the organisers to invite me and other experts to discuss economic issues. Over the last few years, it has become increasingly clear that the real experts on food policy, human rights and coal policy (to name a few) reside neither in the corridors of academia nor in the corridors walked by professionals, bureaucrats or politicians. The real decision-makers are those engaged with the law, so why not learn about optimal, fair and legal policy by inviting the SC to send its representatives? I hope the organisers will take this serious suggestion seriously.
In anger
Some basic questions with regard to the judgment. This is the mother of all retrospective laws — to go all the way back to 1993 takes a lot of confidence and leaps of law. Does India have no statute of limitations? How far back can one go? The court states, citing a bad law (the Coal Mines Nationalisation Amendment Act 1976, or the CMNA) that the provision of a mining lease to any institution that is not “Central government, Central government company or Central government corporation” is illegal. This despite the fact that in 1993, the CMNA was amended to allow for sub-leases to be granted if two conditions are satisfied: “(i) the reserves of coal in the area are in isolated small pockets or are not sufficient for scientific and economical development in a coordinated and integrated manner, and (ii) the coal produced by the sub-lessee will not be required to be transported by rail.” In other words, if the coal block had junk, it could be sub-leased and that the junk could not blacken our railroads.
There are several debatable aspects about the learned SC ruling. First, what legal basis is there for deciding that all coal allocations since 1993 are illegal? If the illegality was of such a magnitude, then how is it possible that no one (including the honourable SC) noticed it for 20 long years? If these actions were illegal, what about the ministers (including prime ministers) and senior bureaucrats who okayed this decision? What is the punishment for them? And what about all the justices who implicitly allowed such rampant illegal acts to take place? When will they be held accountable? Or punished? On accountability, can the court apprise us to the status of Prashant Bhushan’s corruption case against the chief justices of the SC? In 2010, Bhushan stated that, “In my view, out of the last 16 to 17 chief justices, half have been corrupt.”
In pain
There is not only the ignominy of having your licences cancelled but also that coal black firms have to pay a penalty of Rs 295 per tonne of mined coal. The SC takes the easy way out by claiming that it derived this figure from the CAG report, which implicitly (in the judges’ view) did a correct calculation of illegal profits. Of course, it is the same no-number-is-high-enough Vinod Rai of the CAG who extravagantly claimed that there had been a loss of Rs 1.86 lakh crore from the coal allocation scam and this yielded an average financial benefit of Rs 295 per tonne to the black allottees.
As pointed out in several articles in 2012, the CAG reports suffered from a terminal error in its estimation of coal “benefits”. They assumed an interest rate of zero in discounting the stream of future profits. If a discount rate of 10 per cent is assumed, then the lofty scam figure of Rs 1,86,000 crore is reduced to only Rs 74,000 crore. Even this estimate was in gross error because the price of coal assumed by the CAG was the price received by Coal India — a much higher grade coal and one that could be transported by railroad.
Forget the time value of money (interest rate) — too complicated for Vinod Rai’s CAG and even more complicated for the SC. The hard facts that we have at our disposal are the profits obtained by Coal India, one of the Maharatnas of the public sector and a company that produces the finest and costliest coal in India. The public records of this company reveal, as shown in the table, an average post-tax profit rate of Rs 239 per tonne for the years 2006-14. From the grades of coal specified, this average approximates the price of Long Flame Grade D coal.
Junk coal blocks (grade F and G) were allocated to the private sector, by design and intent. As a good public sector monopolist, Coal India did not want to muddy its profits by developing these junk blocks. The average price of this coal is only 39 per cent of Coal India’s price (see table). If the same profit rate as that of Coal India is assumed for the black firms, a very generous assumption in favour of the CAG-SC, the quantum of all the illegal profits made by the companies is Rs 67 per tonne. Or, instead of Rs 8,900 crore being “owed” by the illegal coal firms, only Rs 1,990 crore is “owed”.
In shame: homosexuality
And since retrospective acts are in, how about the SC looking at some of its own questionable judgments of the past? For example, in December 2013, it ruled that homosexuality was a crime; what aspect of human rights, or the Constitution for that matter, allowed it to reach that questionable judgment? The SC overruled a 2009 Delhi High Court ruling in favour of decriminalising homosexuality. Another massively regrettable “retrospective” decision by the court. It had the chance to merely uphold the court ruling but it went out of its way to deem homosexuality a crime. So, zilch to the SC for its non-understanding of the time-value of money and even less for its non-recognition of human rights.
It is now time for a check and balance to the excessively questionable judgments of the SC. The honourable justices realise that they are not infallible; they are human and can make mistakes. And let us not forget how quickly the SC found the Emergency imposed by Indira Gandhi to be “constitutional”. The time has come for the Modi government to act. It should collect the penalty as ordered by the SC, but it should only collect Rs 1,990 crore. This Rs 1,990 crore should be re-allocated to the cancelled firms for infrastructure development. And in addition, these firms should be rewarded for extracting coal profitably out of the refuse abandoned by Coal India.
The writer is chairman of Oxus Investments, an emerging market advisory firm, and a senior advisor to Zyfin, a leading financial information company
