Small town's big coal rush

One firm commercially sold the coal; the other its captive mine; still another sold itself to a big player, lock, stock and barrel. They did not extract any coal, but a few companies still made a fortune.

Nagpur throws up but a few samples of how some firms actually traded their captive coal mines without digging an inch or setting up an industry for which they were allotted the blocks.

In the end nothing got set up on mine pitheads. No power plant. No steel or sponge iron either. Riding their new net-worth spurred by mining leases, the promoters sold their firms for a fortune.

While the Manoj Jayaswal-promoted Abhijeet Group of Companies came into limelight due to its sudden rise and association with Congress MP Vijay Darda, whose companies have been booked by CBI earlier this month, a consortium of small players in this town went almost unnoticed. As coal ministry begins to de-allocate captive blocks now, some of these obscure firms, which together got a number of coal blocks when they had no wherewithal or money to get into the mining affair, are falling under scanner.

The coal ministry last week approved de-allocation of five coal blocks out of a total seven recommended by the Inter-Ministerial Group (IMG), which is reportedly scrutinising 29 blocks awarded to private firms out of the total 58 that were served show cause notices for delays in the development of these mines.

On September 13, the government de-allocated Bramhadih Block in Jharkhand allocated to Castron Mining Ltd in 1996, Chinora and Warora (southern part) blocks in Maharashtra given to Fieldmining and Ispat Ltd in 2003, Lalgarh (North) block in Jharkhand allotted to DOMCO Smokeless Fuels Pvt Ltd in 2005.

It also accepted the IMG recommendation to seize the Bank Guarantee (BG) in case of Marki Mangli-II, III and IV Blocks in Maharashtra. The blocks were allocated to Veerangana Steel Ltd. The ministry also asked the Monnet Ispat & Energy to submit its BG for Utkal B2 Block in Odisha allocated it.

A few more blocks are expected to be delisted in the days to come. But would the ministry action now be able to undo the wrong? Local industry sources say action came when the party is over.

“It’s not a child’s play to open a mine,” explains a retired director of the Western Coalfields Limited, on the condition of anonymity. “You need at least Rs 300-350 crore to go down for coal; anybody working in the sector will vouch for that.” You need technical know-how and the machinery for a mine, and you need to go for over 70 different statutory clearances before you could lay a boundary around the mine. “It may take roughly 7-12 years before you can actually start mining,” he says. You need patience and deep pockets for that, he says. The ministry, he says, gave coal mine to “any Tom, Dick and Harry.”

Govind Daga was no Tom, Dick or a Harry though. A scion of the late Diwan Bahadur Kasturchand Daga, a banker and trader of his time who owned vast stretches of land in this region, he owns the Central Cables Limited that manufactures power cables for a steady clientele. His family lost their coal mines when coal was nationalized in 1973.

So in 1998, post-liberalisation, Daga began his pursuit to foray into power sector. He floated the Central Colliery Company Limited and successfully got a captive mine near Bhadrawati in Chandrapur district to set up a power plant. That was the first block allotted to a private company in coal-rich Vidarbha.

Then, he floated another company called BS Ispat with his friend and colleague in the Vidarbha Industries Association (VIA), Mohan Agrawal. Both Daga and Agrawal are former presidents of VIA and staunch votaries of separate statehood to Vidarbha. Their new venture was to set up a sponge iron plant in the region. Agrawal owned one of the region’s biggest sponge iron firms, Veerangana Steel Private Limited, for which he had separately applied for captive coal mines and got three in Yavatmal district.

There was more. Govind Daga’s brother Ashok started Gondwana Ispat and bagged one block to set up a sponge iron plant. Meanwhile, Daga and Agrawal joined another businessman Anil Taneja, a Nagpur-based dealer in the earth moving equipment, in his newly-floated company Fieldmining and Ispat Limited. This company bagged two coal blocks with 38 MT of coal reserves to set up a sponge iron plant.

Then, in November 2003, Daga backed a leading Nagpur-based Ayurveda firm, Shri Baidyanath Ayurved Bhavan Private Limited, to diversify into power. They applied for a block in partnership and got one.

Between him and his partners, Daga held about nine captive coal blocks with total geological reserves of around 170 MT. What’s the current status of these coal blocks and the companies? Here’s what:

The coal ministry sent show cause notices to BS Ispat and Veerangana earlier this year that their blocks would be cancelled since they had not made any progress on opening them.

The ministry said in its ultimatum issued on May 31 to Veerangana and BS Ispat that “the allotment of coal blocks is for captive purpose; not for profiteering. The commercial use of coal was not allowed. The sale of shareholding for profit defeated the purpose of such allocation.”

Last week their coal allotments were cancelled following the recommendation of the Inter-Ministerial Group, but the original beneficiaries have already sold the companies.

According to the findings of the ministry, Veerangana, which was allotted three coal blocks in Yavatmal, in 2005, no longer existed. Agrawal actually sold it to Topworth Urja and Metals Ltd, which in turn later merged itself with the Crest Steel and Power Ltd, a Chhattisgarh-based steel trading firm.

Ashok Daga’s Gondwana Ispat was, meanwhile, taken over by Nandkishor Sarda, a close friend of Daga-Agrawal duo, and later merged into BS Ispat. After executing complex changes of ownership and equity, Daga, Agrawal and Sarda exited from BS Ispat and reportedly sold the company to the OCL Iron and Steel. Industry sources say the deal was signed for, a cool over Rs 200 crore.

Baidyanath’s coal block was de-allocated long back. It could not make any progress. Another Nagpur-based company whose block has been de-allocated is the Fieldmining and Ispal limited. When Taneja tried selling his firm to the KSK Energy ltd, he ran into a legal tangle with his partners, Daga and Agrawal, and the deal reportedly fizzled out. The battle is on before the company law board.

The company neither mined its block, nor set up a steel unit.

Daga mined the first coal block allotted for his Central Colliery Company and sold coal in the open market in violation of the captive coal mine allotment policy. Intriguingly, Maharashtra government ex-parte permitted Daga to sell it in open market. The captive coal mines were in the Centre’s purview; the state governments had no locus standi on the issue except for giving mine leases for the allotted block.

Daga did not set up a power plant himself so selling coal from the captive block to any other power plant was a violation of the law. When the union coal ministry noticed it, they cancelled his allotment, a move that was upheld by the Delhi High Court last year. It is not yet known if the coal ministry would slap any financial penalties on him to recover the money he made by selling whatever amount of coal he did.

Daga and Agrawal refused to answer calls and requests for an interview for almost a fortnight.

The CBI raids, on the establishments of Darda and Manoj Jayaswal, have created a flutter. Darda’s JLD Yavatmal Energy Limited, JAS power and infrastructure limited (registered in Kolkata but part of Abhijeet Group of Companies, Nagpur) and AMR Steel and Power Limited (part of Jayaswal Neco group) have already been booked by the CBI. With CBI on the prowl, the orange city’s industrialist-coteries have gone into silence, hoping for the storm to settle down.

Daga had admitted to a section of local press some time back that they had sold the stakes in BS Ispat to OCL. His argument then was that since they had failed to secure an iron ore block, essential for a steel or sponge iron unit, they could not come up with their plant, so best was to exit and pay their debts. The transaction was legal. The coal blocks are still with BS Ispat. Only, its owners had changed.

In another case, the ministry found that another Nagpur-based firm, Sunflag Iron and Steel Company, which was allotted Belgaon block in Wardha, Maharashtra, and has been producing coal from it since December 2007, could be diverting excess fuel. The Coal Controller’s Organisation (CCO), sources say, has informed the ministry that between December 2008 and November 2009, the firm produced 1.2 lakh tonnes, and was supposed to use it all for its 15 MW captive power plant in Bhandara.

In 2006, coal was among the hotly discussed issue among the business and industrial circles of Nagpur.

“Everybody was encouraging everyone else to go for coal blocks,” says an industry insider associated with the Vidarbha Economic Development Council, a Nagpur-based voluntary organization. “Some of us had no idea what the push factor was.”

The rush began around 2000, when Maharashtra’s power crisis started assuming alarming proportions. Local players smelled an opportunity; there was money to be made.

Notorious for its ongoing spate of farmers’ suicides and a deepening agrarian crisis, Vidarbha had coal; it had ample water; cheap land and labour too – all what was needed was the capital.

The state government was willing to back private investments if someone went with a proposal. The backward region of Vidarbha suddenly became a talking point: over 80 new private power projects lined up (they still are on the list), several steel units too; MoUs got stamped, and small-time traders looked to build their profile as industrialists, and industrialists aspired to become corporate honchos.

Lands were acquired and water from dams got reserved for power plants by the state government defying farmers’ protests. For a decade, as the coal ministry slept over the developments shrouding the captive coal mines, the promoters of lessee companies made merry violating the commitments.

Once they got the blocks, life styles of the company promoters changed; some of them were new page-3 celebrities. In the case of Abhijeet Group, its owner Manoj Jayaswal even bought a private aircraft for an estimated Rs 150 crore, when his companies had yet to start making anything out of coal or iron ore.

Daga and Agrawal were not the only ones to have traded their blocks. But they certainly set the tone in Nagpur. A few others too managed to sell their blocks or their equity in their companies.

One company, for instance, the Grace Industries Limited owned by a local, Mukesh Gupta, actually floated an advertisement in newspapers announcing its intention to sell its captive coal block of Lohara (east) in Chandrapur’s pristine forest. His company has been booked by CBI in the second FIR registered on Saturday in its ongoing investigations into the coalgate.

The mine was sold to Sanvijay rolling Industry, owned by steel trader Sanjay Agrawal, about three years ago, but the deal ran into a legal problem. The case is now before the Company Law Board.

The Grace Industries had got that block jointly with another firm in Nagpur, Murli Industries, for their captive consumption. The block has meanwhile been de-allocated by the coal ministry.

A few other examples: Chaman Metallics sold to MSP Steel; Navbharat Mines sold to Solar Industries; and the Dhariwal Infrastructure Limited came up with a thermal power plant in Chandrapur’s industrial area on their captive coal mine near Nagpur and then reportedly sold the venture to RP Goenka group.