How Coalgate made the Jayaswals rich overnight

The coal scandal has made it harder for India to generate enough electricity to meet its needs.

His business rivals never fully understood how Manoj Jayaswal got so rich so fast, except that he often seemed joined at the hip with powerful politicians. He hosted them at lavish parties, entertained them at his daughter’s opulent Thai wedding and stood among them at India’s presidential palace, where a year ago he was praised as a leader in the India growth story.

But now Jayaswal is embroiled in a $34 billion coal mining scandal that has exposed the ugly underside of Indian politics and economic life: a brazen style of crony capitalism that has enabled politicians and their friends to reap huge profits by gaining control of vast swaths of the country’s natural resources, often for nothing.

“Today in India, politicians are so powerful,” said Santosh Hegde, a former Supreme Court judge who recently led a sweeping investigation of a different mining scandal in southern India. “All together, they are looting the country.”

Coalgate, as the scandal is now known, is centred on the opaque government allotment process that enabled well-connected businessmen and politicians to obtain rights to undeveloped coalfields.

Investigators are now looking at whether Jayaswal and Vijay Darda, a member of Parliament, conspired to fraudulently obtain five lucrative coal allocations. Naveen Jindal, another lawmaker and one of India’s richest industrialists, is also reportedly under investigation.

Even as the scandal has renewed public anger about rising official graft and the state of the economy, Coalgate has provided fresh ammunition for those who say India’s politicians have become so venal and feckless that they are no longer able or willing to address the country’s entrenched problems.

The opposition BJP, which was already on the defensive because it had been implicated in Hegde’s investigation, has been so eager to score political points with the latest scandal that it shut down Parliament for weeks with floor protests. It refused to allow any debate – even of Coalgate – or any voting unless the prime minister resigned over the scandal. Almost an entire session was lost.

This sort of political dysfunction is hardly new in India and, in recent years, the economy was booming even as the politicians dithered. But now that the economy is slowing sharply, particularly in the ailing energy sector, analysts say India can no longer afford a government that so flagrantly fails to deliver what it promises.

A decade ago, India’s leaders announced an idealistic slogan – Power for All in 2012 – and pledged to bring electricity to every corner of the country, partly by expanding coal-fired power plants.

India still has more than 300 million people living without electricity, and this summer, it suffered the biggest power blackout in history. The scandal in the coal industry, meanwhile, has made it even harder for the country to generate enough electricity to meet its needs.

“Not being able to produce enough power has absolutely been the single biggest bottleneck for economic growth,” said Praveen Chakravarty, chief executive of Mumbai-based Anand Rathi Financial Services. Unlike other sectors of the economy, natural resources like coal remain tightly controlled by politicians and bureaucrats.

A recent study of contributions to India’s political parties offered a telling insight into the nexus between politics and money. Companies in technology and other service businesses – industries that require few government licences or permissions – contributed almost nothing. The biggest donors were involved in mining, power and other sectors dependent on the government to obtain rights to natural resources.

Cleaner energy

India is trying to expand cleaner energy sources but still depends on coal for roughly 57 per cent of its electricity. During the 1970s, India nationalised coal and created the state-owned giant, Coal India, now the world’s largest coal company. India liberalised its once-socialist economy in the early 1990s, and the government privatised a handful of coalfields for ‘captive mining’ so that some companies could secure a guaranteed supply of coal, usually for steel or aluminum plants.

But by 2004, Coal India was not producing coal fast enough to provide power needed to keep up with the country’s rapid growth or to achieve the national goal of universal electrification. The newly elected coalition national government, led by the Congress, vowed to open up the power sector, which prompted a rush of applicants for captive coalfields.

Prime minister Manmohan Singh, however, did not introduce competitive bidding, leading to a murky allocation process. A government screening committee chose the recipients; several former and current bureaucrats and industry officials say its decisions were highly subjective, often favouring applicants with close ties to state and national political bosses. India’s comptroller and auditor general, after examining the committee’s minutes and other documents, issued a scathing report last month.

One former senior official, Surya P Sethi, who unsuccessfully lobbied Singh for a more transparent selection process, said a representative of the global mining giant BHP Billiton complained to him that the system was stacked in favour of certain Indian businesses. “They took the recommendations that suited them,” Sethi, who now teaches at the National University of Singapore, said about the government. “And they overlooked the recommendations that did not suit them.”

Investigators now say that some of the favoured applicants, having acquired the coalfields free, quickly sold them for crores of rupees to steel or power companies. Others simply kept them as an asset and have not yet developed them, even as the country faces blackouts and coal shortages. “Politicians realised that this kind of coal was black gold,” said E A S Sarma, a former power secretary.

On Thursday, in an effort to regain some of its lost credibility, a government panel reviewing coal concessions announced that it was reclaiming four coalfields from companies that had not made sufficient progress in mining.

Jayaswal, the businessman, is based in the city of Nagpur, where he has developed a close relationship with the local MP, Darda. In a statement released by his company, Jayaswal denied any wrongdoing and predicted his company would be exonerated. “The investigation is on, and the company is fully co-operating,” the statement said. “The truth will ultimately prevail.”

One Nagpur businessman, a longtime acquaintance of Jayaswal’s, said many people were puzzled at how quickly he had amassed his fortune, despite having set up only one small power plant, even as his other projects remained in planning stages or were just breaking ground.

Jayaswal is building a large house in Nagpur and hosted his two children’s weddings in Phuket, an island in the south of Thailand. For his daughter’s wedding, Jayaswal flew in 350 friends, business associates and politicians for an event that was featured on the popular Indian television programme “My Big Fat Indian Wedding.”

“He flaunts his wealth, and he lives a rich life,” said the businessman, who asked not to be identified to protect his relationship with Jayaswal. “He is, in the last five or six years, suddenly into very big money.”

Another businessman, who also has been allotted coalfields, said relationships with politicians served as a “master key” enabling industrialists to gain access to natural resources. He argued that Jayaswal had merely played by the government’s rules and that banks would lend only to companies with guaranteed access to raw materials.