No wrongdoing by PM in Hindalco coal block allocation: PMO

Breaking its silence, the Prime Minister's Office today rejected any criminality in the controversial allocation of coal block to Hindalco, saying Prime Minister Manmohan Singh had approved it on the basis of "merits" of the case placed before him.

The PMO, while making it clear that Singh was the 'competent authority' who cleared the proposal mooted by the Coal Ministry in 2005, underlined that the allocation to a joint venture, including Hindalco, was not done at the cost of PSU Neyveli Lignite Corporation.

It released details of the sequence of events leading to Singh's approval on October 1,2005 and said "the Prime Minister is satisfied that the final decision taken in this regard was entirely appropriate and based on the merits of the case placed before him".

While defending the decision, the PMO referred to Singh's statements earlier that the government has nothing to hide and it will fully cooperate with CBI which is probing the case.

The allocation of Talabira coal block in Odisha is in the eye of a storm with CBI booking Aditya Birla Group Chairman Kumar Mangalam Birla and former Coal Secretary P C Parakh. Parakh has said if he was accused of conspiracy, then the Prime Minister also should be made an accused as he had approved the revised decision.

The PMO acknowledged that the final decision on the allocation "differed" from the earlier recommendation of the Screening Committee. "This was done following a representation received in the Prime Minister's Office from one of the parties, which was referred to the Ministry of Coal," the PMO said in a statement.

The PMO said CBI is free to investigate the case as it may have got hold of some documents post-allocation.

"It is recognised that this allocation (of Talabira coal block) is subject to an ongoing investigation. No impediment is being placed on CBI to continue the investigation and seek fresh information which may have a bearing on the case," the PMO statement said.

"The investigation on this and other matters must take their normal course under the law," it added in the statement issued in view of "extensive media coverage" on the matter.

Giving the sequence of events, the PMO said Singh had received a letter dated May 7, 2005 from Kumar Mangalam Birla requesting allocation of Talabira-II and III coal blocks in Odisha to Hindalco for its 650MW captive power plant in its integrated aluminium project in Sambalpur and for a 100MW captive plant for the expansion of its Hirakud aluminium plant in Odisha.

The Prime Minister noted on the letter -- 'please get a report from Coal Ministry', it said.

The PMO forwarded the letter to the Coal Ministry on May 25, 2005 requesting it to look into the matter and send a report.

Birla submitted another letter to the Prime Minister on June 17, 2005 repeating the request. This letter was linked to the earlier reference and sent to the Coal Ministry with a request to send their report on the matter, it said.

In August 2005, the Coal Ministry sent its file on the matter to the Prime Minister, mentioning that the Screening Committee had considered three major contenders for allocation of Talabira-II and decided to allocate this block to NLC.

The decision, in which Hindalco was not given the block, was based on three reasons, the PMO said.

One reason was that 'adequate coal linkages had been provided to Hindalco from Mahanadi Coalfields Ltd long time back and Hindalco had not used the coal'.

Another reason given was that 'Talabira-II and III blocks needed to be developed together to extract an additional 30 million tonnes of coal which would have gone waste otherwise at the boundaries of each block'.

The third reason was that NLC and Mahanadi Coalfields Ltd can develop the two blocks together as one large mine through a Joint Venture (JV).

It noted that Birla had requested for allocation of Talabira-II to Hindalco reasoning that it was "the first applicant for it as long back as 1996" and that "the coal linkage granted earlier was not used as a bauxite mine lease relating to the aluminium plant had not materalised'.

Birla had also argued that "in view of the current shortage of coal, Mahanadi Coalfields Ltd will not be able to supply coal as per the earlier linkage and the government of Odisha favoured allocation of Talabira-II to Hindalco in preference to NLC."

While the file was being processed in the PMO, the Prime Minister received a letter dated August 17, 2005 from the Chief Minister of Odisha Naveen Patnaik on the allotment of Talabira-II to Hindalco, the PMO said.

"The CM's letter mentioned that the state government had assigned topmost priority to the allocation of Talabira-II to Hindalco and had strongly supported the case in the steering committee meeting," it said.

"The letter (of Patnaik) mentioned that aluminium plants should get higher priority over independent power plants as they generate more employment, create more wealth for the country and add to the growth of the manufacturing sector directly.
"Further, it stated that it is equitable to accord higher priority to units adding more value through manufacturing within the state where the coal mine is located.

"The letter urged that these special considerations be kept in mind and the matter examined expeditiously," the PMO said.

On August 29, 2005, the Coal Ministry file on the matter was returned with the comment that while the file was being processed, a letter was received from the Odisha Chief Minister and "the Ministry of Coal may please take this letter of CM, Odisha, on record, re-examine the matter in light thereof and resubmit the file", it added.

The Ministry of Coal re-submitted the file on September 16, 2005 with the proposal that:

(i) Talabira II & III be mined as a single mine with the mining done by a JV formed between MCL, NLC & HINDALCO.

ii) The shareholding of the JV between MCL:NLC:HINDALCO to be 70:15:15.

iii) Mahanadi Coalfields Ltd’s equity shareholding of 70 per cent would approximately equal Talabira-III’s extractable reserves as a proportion of the total of the two blocks. Under the sharing arrangement, 70 per cent of the total annual production will be handed over to Mahanadi Coalfields Ltd.

iv) The remaining 30 per cnet of the annual production will be shared equally between HINDALCO and NLC with each getting 15 per cent.

v) The satisfaction level of NLC would be 29 per cent of its total requirement and of HINDALCO, 81.5 per cent.

The reasoning given by the Ministry of Coal was that Talabira-II & III combined have reserves of 553 million tonnes and allocating the blocks to these three would leave little coal for Mahanadi Coalfields Ltd.

The total requirement of coal from these blocks from the three main contenders is 503 million tonnes, with NLC seeking 280 million tonnes, HINDALCO seeking 100 million tonnes and Orissa Sponge Iron Ltd (OSIL) 123 million tonnes.

"NLC may not be dropped as it is a central PSU already recommended by the Screening Committee. HINDALCO’s case for allocation has been strongly recommended by the state government and it has also been an early applicant. OSIL can be accommodated elsewhere," the Ministry said in re-submitted file.

"It was further brought out that the government of Odisha have indicated a clear preference for allotment of the block to HINDALCO in the interest of creating more employment and growth of the manufacturing sector in the state," it said.

It was also pointed out that while both HINDALCO and NLC get the same amount of coal, HINDALCO’s satisfaction level is about 80 per cent, whereas NLC’s is much lower.

However, as NLC and Mahanadi Coalfields Ltd. are proposing to set up a JV power plant from the coal available from Talabira-II & III, NLC’s full requirements could be met from Mahanadi Coalfields Ltd’s reserves in Talabira-III.

This would fully meet the coal requirement of the two CPSUs to set up their power project and protect the interests of the CPSUs.

"While processing this proposal in PMO, it was noted that the ownership ratio in the JV ownership was not in congruence with the guidelines approved by PM on June 9,2005 which required this ratio to be in proportion to the assessed requirement of coal of each allocatee. As per this guideline, the NLC:HINDALCO ratio in their 30 per cent share should be 22.5:7.5 and not 15:15 as was proposed," the PMO said.