Is it better to pay more money for more electricity, or keep prices low and look forward to blackouts that will conk out offices, factories and homes in India? That is the question that lies at the heart of an ongoing debate about whether authorities should allow utilities Adani Power Ltd and Tata Power Co Ltd to raise their tariffs on existing contracts to clients, to compensate the companies for the domestic coal supply shortages and the rising cost of buying coal from overseas.

Much of it a relic from before the 1991 economic reforms that kick-started the India growth story, the country’s infrastructure is screaming out for more investment to fix pot-holed roads, modernise the railway network and build more power plants. But unable to match the spending power that the likes of China have, the Indian government has turned to the private sector to fund much of the new infrastructure it needs. Indian politicians must therefore strike a balance between allowing the private sector to make money, while at the same time protecting the interests of customers (and voters) in a country where hundreds of millions live below the poverty line.

Is it better to have state-run, pot-holed roads, or have swish six-line highways that charge a toll that becomes unaffordable to some? What’s more, to what extent should the government go to protect infrastructure firms – vying with one another for project bids – when such projects run into trouble?

At the start of April, Adani was granted permission by the federal power regulator to allow it to charge “compensatory” tariffs to existing customers in Gujarat and Haryana, after a spike in the price of Indonesian coal caused it to incur heavy losses. Tata Power won a similar ruling two weeks later. Adani has already seen the ruling challenged by the Haryana state, which argues that Adani should stick to its original agreement. That has sparked fears that the ruling – a potential game-changer for the sector that has been battered by fuel shortages and distribution losses – could get bogged down in legal battles.

The lawyer who represented Adani in the case, Amit Kapur of J. Sagar Associates, said Adani’s original bid for the project was premised on the company using domestic coal. But the mine meant for Adani never got allocated, which forced the company to rely on imported coal. When Indonesia later jacked up its prices, the plant started to incur heavy losses. Adani said in its petition it could not continue to run the plant for more than two or two-and-a-half years if it continued to bleed cash, Kapur said.

“We don’t want to profiteer out of it, but we can’t possibly continue to incur this kind of loss because it will wipe out our whole equity,“ Kapur told Reuters.

Both Adani and Tata have made similar arguments to support their case.

Is it really in India’s long term interests, they argue, to let already-built power plants shut down because of unsustainable losses? Because that means, they say, that no one will get the electricity India needs and the country will have to spend even more money building new plants that may then also be forced to shell out cash for expensive imported coal?

“By any standards, a project which is ready, on the ground and running, is far better than a project which is not even started,” a source close to Tata Power said. “It’s a no-brainer that this increase is still justified.”

(Follow Matthias on Twitter @matthi_williams )

The case filed by Haryana underscores the ability of local politics to derail a regulator decision that was hailed by power companies as a step toward ending electricity shortages that sap the competitiveness of businesses in India, hobbling economic growth.

Haryana is home to the business hub of Gurgaon, where companies rely on costly generators to avoid major and frequent blackouts. Microsoft Corp (MSFT.O: Quote, Profile, Research), Google Inc (GOOG.O: Quote, Profile, Research) and agribusiness giant Cargill Inc are some of the multinational firms based there.

State power minister Ajay Yadav told Reuters his government had filed a challenge against an April ruling by the Central Electricity Regulatory Commission (CERC) that paved the way for Adani Power to increase the price at which it sells electricity to state-subsidised power distribution companies.

CERC had also issued a similar ruling favourable to Tata Power Co Ltd (TTPW.NS: Quote, Profile, Research), which sells to Haryana, but it was not immediately clear if the state would challenge that ruling as well. The regulator is also mulling a decision that could benefit Reliance Power Ltd (RPOL.NS: Quote, Profile, Research).

“We decided to file an appeal,” Yadav said on Tuesday, referring to the Adani Power ruling which was specific to the company’s operations in Haryana and Gujarat states.

The challenge was filed at the power tribunal and there is no indication when it will be heard as the judicial system is notoriously slow.

An Adani spokesperson did not respond to requests for comment. The company posted a net loss of 5.86 billion rupees in the quarter that ended March 31, more than double the loss incurred over the same period a year ago.

It was not clear if the government of Gujarat would also appeal the ruling. Senior officials at the state energy ministry, who declined to be named as they are not authorised to speak to the media, said they could see the merits of the federal regulator’s ruling in favour of Adani Power.

India sits on the world’s fifth-largest coal reserves, but local utilities rely on costly imports because domestic supplies are patchy as coal mining projects are mired in red tape and corruption.

The government has struggled to balance the needs for private electricity firms to turn a profit while protecting voters in a country with hundreds of millions of poor. A general election, due within a year, could make the issue of power prices especially sensitive.

Yadav said the Haryana government would take part in a committee that was formed to decide the price Adani Power could now charge, although the committee had missed an April 30 deadline to meet.

“We want to keep both the options open,” he said.

(Editing by Miral Fahmy)

The case filed by the northern state of Haryana underscores
the ability of local politics to derail a federal decision that
was hailed by power companies as a step toward ending
electricity shortages that sap the competitiveness of businesses
in India, hobbling economic growth.

Haryana is home to the business hub of Gurgaon, where
companies rely on costly generators to avoid major and frequent
blackouts. Microsoft Corp, Google Inc and
agribusiness giant Cargill Inc are some of the
multinational firms based there.

State power minister Ajay Yadav told Reuters his government
had filed a challenge against an April ruling by the Central
Electricity Regulatory Commission (CERC) that paved the way for
Adani Power to increase the price at which it sells electricity
to state-subsidised power distribution companies.

CERC had also issued a similar ruling favourable to Tata
Power Co Ltd, which sells to Haryana, but it was not
immediately clear if the state would challenge that ruling as
well. The regulator is also mulling a decision that could
benefit Reliance Power Ltd.

“We decided to file an appeal,” Yadav said on Tuesday,
referring to the Adani Power ruling which was specific to the
company’s operations in Haryana and Gujarat states.

The challenge was filed at the federal power tribunal and
there is no indication when it will be heard as India’s judicial
system is notoriously slow.

An Adani spokesperson did not respond to requests for
comment. The company posted a net loss of 5.86 billion rupees
($107 million) in the quarter that ended March 31, more than
double the loss incurred over the same period a year ago.

It was not clear if the government of Gujarat would also
appeal the ruling. Senior officials at the state energy
ministry, who declined to be named as they are not authorised to
speak to the media, said they could see the merits of the
federal regulator’s ruling in favour of Adani Power.

India sits on the world’s fifth-largest coal reserves, but
local utilities rely on costly imports because domestic supplies
are patchy as coal mining projects are mired in red tape and
corruption.

The government has struggled to balance the needs for
private electricity firms to turn a profit while protecting
voters in a country with hundreds of millions of poor. A general
election, due within a year, could make the issue of power
prices especially sensitive.

Yadav said the Haryana government would take part in a
committee that was formed to decide the price Adani Power could
now charge, although the committee had missed an April 30
deadline to meet.

“We want to keep both the options open,” he said.

($1 = 54.7850 Indian rupees)

(Editing by Miral Fahmy)

He was a wealthy coal trader, a politician and, police say, a crime boss. At the time of the shooting, Singh had 14 criminal charges against him, including one for homicide. His career and murder are emblematic of one of India’s most nagging economic problems: the corruption that cripples the crucial coal industry.

The shooting was the latest gangland killing between rival coal clans, both with the surname Singh. They have fought for years to control rackets that prey upon the coal industry in the impoverished state of Jharkhand, home to some of the nation’s biggest mines. The rackets include controlling unions and transport, manipulating coal auctions, extortion, bribery and outright theft of coal. Popularly known as the “coal mafia,” their tentacles even reach into state-run Coal India (COAL.NS: Quote, Profile, Research), the world’s largest coal miner, its chairman told Reuters.

On a series of trips to the region, Reuters found widespread plunder in India’s coal country that contributes substantially to chronic shortages of a commodity fuelling over half the power generation in Asia’s third-largest economy.

It is a murky subculture that entwines the coal mafia, police, poor villagers, politicians, unions and Coal India officials. Coal workers pay a cut to crime bosses to join their unions, which control access to jobs, according to law-enforcement and industry officials. Unions demand a “goon tax” from buyers, a fixed fee per tonne, before loading their coal. Buyers must bribe mining companies to get decent-quality coal. The mafia pays off company officials, police, politicians and bureaucrats to mine or transport coal illegally.

In a startling admission, Coal India Chairman S. Narsing Rao said he knows some of his officials are involved in stealing coal but his company can’t control what happens once trucks leave the mine gate.

“Obviously it happens with the connivance of our own guys, in collusion with our own guys,” he said in an interview.

Rao estimated the scams cost his company, which has a near-monopoly, about 5 percent of its 450 million tonne annual output. Two senior police officials in Jharkhand said the real figure is between a fifth and half the production at some mines.

Corruption, crime and waste in the economy exact a heavy toll on the economy. Recently built power stations stand idle across India, mainly for lack of coal. Last July, the world’s most severe blackout shut off power in half of India, home to 1.2 billion people.

Increasingly, power companies are turning to imports as domestic output lags demand. Yet India sits on the world’s fifth-largest coal reserves, which the government says could supply the nation’s energy needs for decades. Coal imports have tripled in a decade to some $1.5 billion a year. The International Energy Agency expects imports to rise faster in India than anywhere else, as consumption overtakes that of the United States by 2017.

National political leaders promise action – but at the same time throw up their hands.

Coal Minister Sriprakash Jaiswal said in an interview that the Central Bureau of Investigation, akin to the U.S. Federal Bureau of Investigation, was taking a larger role in tackling the mafia, but emphasized it was mainly up to state governments to tackle crime.

“There is no doubt that coal mafias are active. We accept that coal theft happens. But law and order are state subjects,” Jaiswal said. “I won’t say that the state governments do not cooperate. But the system there is so weak, policing is weak.”

PDF version of this story: link.reuters.com/qej97t

Graphics

Mafia territory – link.reuters.com/pyn75t

Chain of corruption – link.reuters.com/pyn75t

SINGH MANSION

Suresh Singh seemed relaxed at the December 8, 2011, wedding party of a local hotelier’s son, police and a witness said. His bodyguards were unarmed.

A high-school dropout with a long police record, the 48-year-old Suresh thought the old gang ways were becoming outdated in the “Shining India” of today, a source close to the family said. He had even sent his son to England to study banking.

After the bullets flew, Suresh’s bodyguards drove him to a hospital, where he died 30 minutes later. His father filed a police report saying his son, in a dying declaration, had named three people responsible for the attack – Sashi, Sanjeev and Ramadhir Singh, from a rival family known as “Singh Mansion.”

Eleven witnesses also named Sashi as the shooter, according to the police report.

“The moment Suresh got up to leave the party, Sashi stood up, walked towards him and shot him seven times,” said Ravi Thakur, the police officer in charge of the investigation.

The victim and his alleged attackers were rivals in business and local politics. Suresh was twice an unsuccessful candidate for India’s ruling Congress party in elections marred by violence. The mother of the accused gunman, Sashi, is the mayor of Dhanbad. Sashi is still at large, having fled across state lines, police said. No charges have been filed against the other accused individuals.

Police have differing versions of why Sashi would have shot Suresh. Thakur says he is investigating the case as a premeditated shooting, either in revenge for a previous murder or over their conflicting business interests. Another police officer and people in Dhanbad say an insult was the trigger.

Sashi’s cousin Sanjeev, the young heir to the Singh Mansion dynasty, is also a named suspect in the murder, though he was not at the wedding party. He was in hiding for months before returning to Dhanbad last September. Now he rides the streets of the coal capital with 20 men and an armed police escort in a convoy of white SUVs.

“Today, Suresh is not here, but it doesn’t mean I don’t have any more rivals who wish to kill me,” Sanjeev said in an interview.

Sanjeev is expected to run in the next state assembly elections as a candidate for the Bharatiya Janata Party (BJP) in Jharia, party members told Reuters. Sanjeev declined to confirm that.

In a two-hour interview over tea and samosas at the orange-walled mansion in Dhanbad that gave the family business its name, Sanjeev denied he or his family were involved in Suresh’s murder. But he spoke extensively about their feud.

Sanjeev’s father started Singh Mansion in the early 1970s, having risen from coal worker to union boss and state legislator. He counted the late Prime Minister Chandra Shekhar, who once spent a weekend at the mansion, as a friend, Sanjeev recalled.

The father’s power and business were based on the labour union he controlled and which remains a bastion of the Singh Mansion enterprise. It is empowered to bargain collectively for workers at Bharat Coking Coal Limited (BCCL), a Coal India subsidiary. Police say Singh Mansion uses the union to control and extract bribes from coal transporters.

The feud began in the 1990s, when Suresh began to compete with Singh Mansion at coal auctions, Sanjeev said. The auctions are a key focus for crime syndicates, police say. Mafia-controlled unions will sometimes refuse to load coal bought by anyone else. That usually ensures the syndicates are the only bidders and keeps auction prices low, said a person with close knowledge of Suresh Singh’s affairs.

The union controlled by Singh Mansion, Janta Mazdoor Sangh, has long exerted influence over BCCL officials, who allow Singh Mansion to run rackets that include theft of coal to sell on the black market and controlling trucks that leave the mines. Sanjeev, who is the general secretary of the union, denied the union was involved in anything illegal.

BCCL’s chairman, T.K. Lahiry, said it is true that when he took over the company four years ago, Singh Mansion’s influence was huge. “Singh Mansion was having entire command and control” over a major area in BCCL’s operations, he told Reuters. “All sorts of anti-social activities were going through that particular office.”

He said he shut down the area office and transferred dozens of influential officials suspected of working for Singh Mansion. BCCL as a whole is making a profit now after years in the red, he said, but he added that only the police could put an end to the coal rackets.

BLIGHTED LANDSCAPE

Decades of lawless coal trading have left their mark everywhere around Dhanbad, where coal dust chokes the sky. Dirt-poor families dig coal under a baking sun in unregulated pits. Thousands of people carry baskets of illegally mined coal atop their heads or by bicycle to mafia-run depots. Many of the trucks that link the mines to the rail yards carry coal mixed with rocks, said a person with family ties to a coal gang. Other trucks are simply not counted as they leave.

At the Kapasara coal-mining operation, owned by Coal India subsidiary Eastern Coalfields Ltd (ECL), villagers dig illegal tunnels alongside licensed earth-moving equipment. Armed police watch indifferently. Illegal miners for years have been digging outward from a huge pit ECL was supposed to have closed and filled with sand. Four years ago, one tunnel collapsed on dozens of miners, killing six.

“This whole place is hollowed out,” said Jatin Mishra, tapping with a stick. He is part of an informal group of residents trying to use right-to-information laws to prove ECL has misspent millions of rupees on contracts to close the tunnels.

The “sand scam” was a big money spinner in the early 1980s for the mafia, and the failure to close illegal mines has made it easier for old fires to spread, the residents’ group said.

ECL Chairman Rakesh Sinha denied that. He said illegal tunnels were filled whenever police notified the company. Illegal mining is rampant, he conceded, due to inadequate policing.

Singh Mansion was among those who received contracts for filling mines with sand, said a senior BJP state official close to the family. “On paper, the mines were filled,” the BJP official said. “But they weren’t.” Sanjeev Singh denied that.

RAILWAY BATTLEGROUND

At a railway siding in Dhanbad, trucks load a train with coal from a nearby pithead. The siding is controlled by Singh Mansion, said a local politician close to Sanjeev’s family. These sidings are a key battleground for mafia gangs across Jharkhand state. Here, their unions extort money from coal buyers and load rocks along with the coal onto the trains, say police and coal-industry officials.

A manager at a state-run power company in Jharkhand that buys coal from Coal India said his plant’s efficiency and costs were harmed by rocks and ash mixed in with the coal. Adulterated coal is now such a major problem that the country’s top power producer, state-run NTPC (NTPC.NS: Quote, Profile, Research), has witheld some payments to Coal India, citing quality concerns.

“Mafia in coal is a big issue, they are not addressing these issues,” a senior NTPC official told Reuters when asked about the spat with Coal India. “We keep on fighting, and it is of no use.”

Mafia-run unions demand a “goon tax,” a fixed price per tonne paid before coal is loaded onto trucks or trains, the Jharkhand power-company manager said. One coal trader told Reuters that bribes add up to 20 percent to the cost of a tonne of quality coal.

Private buyers who want to buy coal via electronic auctions are locked out of the market. Auction data published in a local newspaper show that some lots of coal at mafia-dominated pits are sold at the auction floor price – well below market rates.

“The mafia doesn’t let people participate in the tender process,” the power plant manager said. “Even if you win the tender, the local mafia won’t let you lift the coal.”

TARGETING SINGH MANSION

When Suman Gupta rolled into Dhanbad in 2009 as the new police chief, she immediately put Singh Mansion on the defensive. Police under her watch searched cars for weapons by day, and using a network of informants, conducted raids on illegal truck-loads of coal at night.

She filed cases against Singh Mansion members, including charges of extorting coal merchants, but said she was unable to stamp out a system that involved politicians and mining officials. She was transferred after just two years as the Dhanbad police chief. News of her transfer sparked protests in the city.

“I know (who the mafia were), but I couldn’t take any action against them, because they’re politically well-connected. They have financial power,” Gupta said in an interview at her new posting in the city of Hazaribagh, which also lies in the coal belt.

She said that over the decades, Singh Mansion built close ties to officials at BCCL, the Coal India subsidiary, who provided cover for the illicit business. BCCL could itself make a huge dent in the problem of illegal mining simply by putting fences around the mines and stationing guards there, she said.

“We have registered many (police reports) against BCCL officials who were responsible for stopping this illegal mining, but they did not,” said Gupta. “There are many things they are supposed to do, but they are not doing it.”

Lahiry, the BCCL chairman, said his crackdown on ties to Singh Mansion was forceful. “Now a clear-cut message has been sent to everybody… that the company comes first, and the priority is the company’s interest.”

ECONOMIC IMPACT

The mafia also reduces productivity with labour stoppages. One senior BCCL official in Dhanbad said stoppages alone by one suspected mafia boss restrained output at some collieries by 10 percent.

The exact economic impact of the coal mafia is hard to quantify; no comprehensive studies exist. A coal ministry tender to conduct the first investigation into the economic impact of criminal activities in the coal fields collapsed when no consultants bid for the contract. One research group said it decided not to bid because it was too dangerous for its staff.

Other issues bedevil Coal India – snarly regulations, enormous difficulty in acquiring land for mining, a shortage of railway lines to move product. But corruption is so widespread, Jaiswal told Reuters, that just cleaning up the system would raise official output by at least 15 percent.

That won’t be easy. Coal-industry executives say that even if they root out the established coal mafia, newcomers are waiting in the wings.

ANOTHER COAL KING

Walls in and around Dhanbad feature a scrawled new slogan that is shaking up the old mafia order: “Long live Dhulu Mahto.”

Like the founder of Singh Mansion, Mahto is a state legislator who started from humble beginnings as a coal worker and then union boss. He is the champion of a new class of rootless workers who don’t work for the big coal companies. Their ranks have steadily grown as the coal companies lease out their pits to private companies, who in turn look for contract workers.

People in Dhanbad call him “new mafia.” His influence falls over mines that produce a third of BCCL’s production, a senior BCCL official in the area said. Some mines would produce at least 10 percent more coal if Mahto, 37, were to stop leading labour strikes, the official said.

A recent public-interest suit filed in the Jharkhand high court by advocate Somnath Chatterjee sought an official inquiry into the source of Mahto’s wealth, which the suit estimated at $36 million.

Mahto denied he was a gangster and said accusations he was involved in the illegal coal trade were politically motivated.

“We don’t want to be kings,” he said, grinning broadly and surrounded by supporters at his mansion overlooking an abandoned pit outside Dhanbad. “We just want to serve.”

(Additional reporting by Malini Menon, Prashant Mehra and John Chalmers; Editing by Bill Tarrant and Michael Williams)

He was a wealthy coal trader, a politician and, police say, a crime boss. At the time of the shooting, Singh had 14 criminal charges against him, including one for homicide. His career and murder are emblematic of one of India’s most nagging economic problems: the corruption that cripples the crucial coal industry.

The shooting was the latest gangland killing between rival coal clans, both with the surname Singh. They have fought for years to control rackets that prey upon the coal industry in the impoverished state of Jharkhand in eastern India, home to some of the nation’s biggest mines. The rackets include controlling unions and transport, manipulating coal auctions, extortion, bribery and outright theft of coal. Popularly known as the “coal mafia,” their tentacles even reach into state-run Coal India, the world’s largest coal miner, its chairman told Reuters.

On a series of trips to the region, Reuters found widespread plunder in India’s coal country that contributes substantially to chronic shortages of a commodity fuelling over half the power generation in Asia’s third-largest economy.

It is a murky subculture that entwines the coal mafia, police, poor villagers, politicians, unions and Coal India officials. Coal workers pay a cut to crime bosses to join their unions, which control access to jobs, according to law-enforcement and industry officials. Unions demand a “goon tax” from buyers, a fixed fee per tonne (1 metric ton = 1.102 tonnes), before loading their coal. Buyers must bribe mining companies to get decent-quality coal. The mafia pays off company officials, police, politicians and bureaucrats to mine or transport coal illegally.

In a startling admission, Coal India Chairman S. Narsing Rao said he knows some of his officials are involved in stealing coal but his company can’t control what happens once trucks leave the mine gate.

“Obviously it happens with the connivance of our own guys, in collusion with our own guys,” he said in an interview.

Rao estimated the scams cost his company, which has a near-monopoly, about 5 percent of its 450 million tonne annual output. Two senior police officials in Jharkhand said the real figure is between a fifth and half the production at some mines.

Corruption, crime and waste in the economy exact a heavy toll on the economy. Recently built power stations stand idle across India, mainly for lack of coal. Last July, the world’s most severe blackout shut off power in half of India, home to 1.2 billion people.

Increasingly, power companies are turning to imports as domestic output lags demand. Yet India sits on the world’s fifth-largest coal reserves, which the government says could supply the nation’s energy needs for decades. Coal imports have tripled in a decade to some $1.5 billion a year. The International Energy Agency expects imports to rise faster in India than anywhere else, as consumption overtakes that of the United States by 2017.

National political leaders promise action – but at the same time throw up their hands.

Coal Minister Sriprakash Jaiswal said in an interview that the Central Bureau of Investigation, akin to the U.S. Federal Bureau of Investigation, was taking a larger role in tackling the mafia, but emphasized it was mainly up to state governments to tackle crime.

“There is no doubt that coal mafias are active. We accept that coal theft happens. But law and order are state subjects,” Jaiswal said. “I won’t say that the state governments do not cooperate. But the system there is so weak, policing is weak.”

SINGH MANSION

Suresh Singh seemed relaxed at the December 8, 2011, wedding party of a local hotelier’s son, police and a witness said. His bodyguards were unarmed.

A high-school dropout with a long police record, the 48-year-old Suresh thought the old gang ways were becoming outdated in the “Shining India” of today, a source close to the family said. He had even sent his son to England to study banking.

After the bullets flew, Suresh’s bodyguards drove him to a hospital, where he died 30 minutes later. His father filed a police report saying his son, in a dying declaration, had named three people responsible for the attack – Sashi, Sanjeev and Ramadhir Singh, from a rival family known as “Singh Mansion.”

Eleven witnesses also named Sashi as the shooter, according to the police report.

“The moment Suresh got up to leave the party, Sashi stood up, walked towards him and shot him seven times,” said Ravi Thakur, the police officer in charge of the investigation.

The victim and his alleged attackers were rivals in business and local politics. Suresh was twice an unsuccessful candidate for India’s ruling Congress party in elections marred by violence. The mother of the accused gunman, Sashi, is the mayor of Dhanbad. Sashi is still at large, having fled across state lines, police said. No charges have been filed against the other accused individuals.

Police have differing versions of why Sashi would have shot Suresh. Thakur says he is investigating the case as a premeditated shooting, either in revenge for a previous murder or over their conflicting business interests. Another police officer and people in Dhanbad say an insult was the trigger.

Sashi’s cousin Sanjeev, the young heir to the Singh Mansion dynasty, is also a named suspect in the murder, though he was not at the wedding party. He was in hiding for months before returning to Dhanbad last September. Now he rides the streets of the coal capital with 20 men and an armed police escort in a convoy of white SUVs.

“Today, Suresh is not here, but it doesn’t mean I don’t have any more rivals who wish to kill me,” Sanjeev said in an interview.

Sanjeev is expected to run in the next state assembly elections as a candidate for the opposition Bharatiya Janata Party (BJP) in Jharia, party members told Reuters. Sanjeev declined to confirm that.

In a two-hour interview over tea and samosas at the orange-walled mansion in Dhanbad that gave the family business its name, Sanjeev denied he or his family were involved in Suresh’s murder. But he spoke extensively about their feud.

Sanjeev’s father started Singh Mansion in the early 1970s, having risen from coal worker to union boss and state legislator. He counted the late Prime Minister Chandra Shekhar, who once spent a weekend at the mansion, as a friend, Sanjeev recalled.

The father’s power and business were based on the labor union he controlled and which remains a bastion of the Singh Mansion enterprise. It is empowered to bargain collectively for workers at Bharat Coking Coal Limited (BCCL), a Coal India subsidiary. Police say Singh Mansion uses the union to control and extract bribes from coal transporters.

The feud began in the 1990s, when Suresh began to compete with Singh Mansion at coal auctions, Sanjeev said. The auctions are a key focus for crime syndicates, police say. Mafia-controlled unions will sometimes refuse to load coal bought by anyone else. That usually ensures the syndicates are the only bidders and keeps auction prices low, said a person with close knowledge of Suresh Singh’s affairs.

The union controlled by Singh Mansion, Janta Mazdoor Sangh, has long exerted influence over BCCL officials, who allow Singh Mansion to run rackets that include theft of coal to sell on the black market and controlling trucks that leave the mines. Sanjeev, who is the general secretary of the union, denied the union was involved in anything illegal.

BCCL’s chairman, T.K. Lahiry, said it is true that when he took over the company four years ago, Singh Mansion’s influence was huge. “Singh Mansion was having entire command and control” over a major area in BCCL’s operations, he told Reuters. “All sorts of anti-social activities were going through that particular office.”

He said he shut down the area office and transferred dozens of influential officials suspected of working for Singh Mansion. BCCL as a whole is making a profit now after years in the red, he said, but he added that only the police could put an end to the coal rackets.

BLIGHTED LANDSCAPE

Decades of lawless coal trading have left their mark everywhere around Dhanbad, where coal dust chokes the sky. Dirt-poor families dig coal under a baking sun in unregulated pits. Thousands of people carry baskets of illegally mined coal atop their heads or by bicycle to mafia-run depots. Many of the trucks that link the mines to the rail yards carry coal mixed with rocks, said a person with family ties to a coal gang. Other trucks are simply not counted as they leave.

At the Kapasara coal-mining operation, owned by Coal India subsidiary Eastern Coalfields Ltd (ECL), villagers dig illegal tunnels alongside licensed earth-moving equipment. Armed police watch indifferently. Illegal miners for years have been digging outward from a huge pit ECL was supposed to have closed and filled with sand. Four years ago, one tunnel collapsed on dozens of miners, killing six.

“This whole place is hollowed out,” said Jatin Mishra, tapping with a stick. He is part of an informal group of residents trying to use right-to-information laws to prove ECL has misspent millions of rupees on contracts to close the tunnels.

The “sand scam” was a big money spinner in the early 1980s for the mafia, and the failure to close illegal mines has made it easier for old fires to spread, the residents’ group said.

ECL Chairman Rakesh Sinha denied that. He said illegal tunnels were filled whenever police notified the company. Illegal mining is rampant, he conceded, due to inadequate policing.

Singh Mansion was among those who received contracts for filling mines with sand, said a senior BJP state official close to the family. “On paper, the mines were filled,” the BJP official said. “But they weren’t.” Sanjeev Singh denied that.

RAILWAY BATTLEGROUND

At a railway siding in Dhanbad, trucks load a train with coal from a nearby pithead. The siding is controlled by Singh Mansion, said a local politician close to Sanjeev’s family. These sidings are a key battleground for mafia gangs across Jharkhand state. Here, their unions extort money from coal buyers and load rocks along with the coal onto the trains, say police and coal-industry officials.

A manager at a state-run power company in Jharkhand that buys coal from Coal India said his plant’s efficiency and costs were harmed by rocks and ash mixed in with the coal. Adulterated coal is now such a major problem that the country’s top power producer, state-run NTPC, has withheld some payments to Coal India, citing quality concerns.

“Mafia in coal is a big issue, they are not addressing these issues,” a senior NTPC official told Reuters when asked about the spat with Coal India. “We keep on fighting, and it is of no use.”

Mafia-run unions demand a “goon tax,” a fixed price per tonne paid before coal is loaded onto trucks or trains, the Jharkhand power-company manager said. One coal trader told Reuters that bribes add up to 20 percent to the cost of a tonne of quality coal.

Private buyers who want to buy coal via electronic auctions are locked out of the market. Auction data published in a local newspaper show that some lots of coal at mafia-dominated pits are sold at the auction floor price – well below market rates.

“The mafia doesn’t let people participate in the tender process,” the power plant manager said. “Even if you win the tender, the local mafia won’t let you lift the coal.”

TARGETING SINGH MANSION

When Suman Gupta rolled into Dhanbad in 2009 as the new police chief, she immediately put Singh Mansion on the defensive. Police under her watch searched cars for weapons by day, and using a network of informants, conducted raids on illegal truck-loads of coal at night.

She filed cases against Singh Mansion members, including charges of extorting coal merchants, but said she was unable to stamp out a system that involved politicians and mining officials. She was transferred after just two years as the Dhanbad police chief. News of her transfer sparked protests in the city.

“I know (who the mafia were), but I couldn’t take any action against them, because they’re politically well-connected. They have financial power,” Gupta said in an interview at her new posting in the city of Hazaribagh, which also lies in the coal belt.

She said that over the decades, Singh Mansion built close ties to officials at BCCL, the Coal India subsidiary, who provided cover for the illicit business. BCCL could itself make a huge dent in the problem of illegal mining simply by putting fences around the mines and stationing guards there, she said.

“We have registered many (police reports) against BCCL officials who were responsible for stopping this illegal mining, but they did not,” said Gupta. “There are many things they are supposed to do, but they are not doing it.”

Lahiry, the BCCL chairman, said his crackdown on ties to Singh Mansion was forceful. “Now a clear-cut message has been sent to everybody… that the company comes first, and the priority is the company’s interest.”

ECONOMIC IMPACT

The mafia also reduces productivity with labor stoppages. One senior BCCL official in Dhanbad said stoppages alone by one suspected mafia boss restrained output at some collieries by 10 percent.

The exact economic impact of the coal mafia is hard to quantify; no comprehensive studies exist. A coal ministry tender to conduct the first investigation into the economic impact of criminal activities in the coal fields collapsed when no consultants bid for the contract. One research group said it decided not to bid because it was too dangerous for its staff.

Other issues bedevil Coal India – snarly regulations, enormous difficulty in acquiring land for mining, a shortage of railway lines to move product. But corruption is so widespread, Jaiswal told Reuters, that just cleaning up the system would raise official output by at least 15 percent.

That won’t be easy. Coal-industry executives say that even if they root out the established coal mafia, newcomers are waiting in the wings.

ANOTHER COAL KING

Walls in and around Dhanbad feature a scrawled new slogan that is shaking up the old mafia order: “Long live Dhulu Mahto.”

Like the founder of Singh Mansion, Mahto is a state legislator who started from humble beginnings as a coal worker and then union boss. He is the champion of a new class of rootless workers who don’t work for the big coal companies. Their ranks have steadily grown as the coal companies lease out their pits to private companies, who in turn look for contract workers.

People in Dhanbad call him “new mafia.” His influence falls over mines that produce a third of BCCL’s production, a senior BCCL official in the area said. Some mines would produce at least 10 percent more coal if Mahto, 37, were to stop leading labor strikes, the official said.

A recent public-interest suit filed in the Jharkhand high court by advocate Somnath Chatterjee sought an official inquiry into the source of Mahto’s wealth, which the suit estimated at $36 million.

Mahto denied he was a gangster and said accusations he was involved in the illegal coal trade were politically motivated.

“We don’t want to be kings,” he said, grinning broadly and surrounded by supporters at his mansion overlooking an abandoned pit outside Dhanbad. “We just want to serve.”

(Additional reporting by Malini Menon, Prashant Mehra and John Chalmers; Editing by Bill Tarrant and Michael Williams)

The row underscores the difficulties India faces in
extracting coal quickly and efficiently enough to eliminate
power shortages that hurt economic growth, and to reduce its
reliance on costlier imports.

The head of Eastern Coalfields Limited (ECL), a subsidiary
of Coal India, the world’s largest coal mining company, said on
Friday it could halt supplies to two plants of NTPC
after the latter stopped paying the full price for shipments.

Power producer NTPC has long complained it is forced to
accept coal that is heavily adulterated with rocks and stones
for its plants, hurting output and slowing the signing of new
contracts.

An NTPC official, who did not want to be identified because
of the sensitivity of the matter, said the company had “taken a
stand” against its supplier, but added that it expected Coal
India to revolve the dispute soon.

R. Sinha, the chairman and managing director of ECL, said
the Coal India unit had been forced to cash in fixed deposits to
pay employees’ salaries, to make up for the fact that NTPC’s
non-payments amounted to 10 billion rupees ($182 million).

“We are open-minded. If NTPC resolves the issues, they can
get coal as they were getting. We can’t keep coal at our pithead
because it will catch fire. So, we have to stop production if
they don’t resolve the issues,” he said.

“If this month again I have to encash some of the fixed
deposits, then I have to stop their coal supply, if they don’t
pay us our dues,” he added.

QUALITY CONTROL

India sits on the world’s fifth-largest coal reserves. But
state-controlled mining operations are riddled with corruption
and the theft of good quality coal by criminals colluding with
Coal India officials and police, a parliamentary panel said last
year.

A massive blackout last July, when power was cut for two
consecutive days in a massive area home to 670 million people,
showed how far the country still has to travel in terms of
providing reliable power.

NTPC gets the bulk of its coal through long-term fuel supply
agreements (FSAs) with Coal India. The utility has delayed
signing a new supply pact for 4,500 MW, however, citing quality
issues, its chairman said in February.

ECL supplies coal from its Rajmahal mine in Jharkhand state
to NTPC’s Kahalgaon and Farakka plants, and plans to expand the
mine’s capacity to 17 million tonnes from 14 million tonnes
could be scuppered if NTPC does not pay its dues, Sinha said.

“We have taken a stand,” an NTPC official said by telephone,
acknowledging the company had not paid in full for the coal
supplies but declining to give specifics.

“We’ve always had issues with supplies there,” the official
said about coal shipments in India’s east. ECL is headquartered
in the eastern state of West Bengal, where it has mines, as well
as in neighbouring Jharkhand.

“Coal India is also an equally responsible organisation. I
think they will very soon come up with a good plan,” the
official said, without saying how a compromise could be reached.

Both coal supplier and power producer now jointly monitor
the quality of coal extracted from mines, opening up the
possibility of wrangles over its true worth. The government
plans to change that by mandating a third party to judge value.

Dipesh Dipu, a partner at Jenissi Management Consultants,
played down the chances of the dispute escalating to the point
where Coal India would pull the plug on supplies and cause mass
power shortages.

“I don’t suspect it will lead to that kind of extreme
measures, because at the end of the day, both public sector
entity heads are responsible to their political bosses.”

(Editing by Clarence Fernandez)

The Central Electricity Regulatory Commission (CERC) on
Tuesday allowed Adani Power to charge more for electricity from
its Mundra plant to existing clients in the states of Gujarat
and Haryana until conditions improve.

The regulator said the tariff was fair given the damage to
the sector caused by the rising cost of imported coal from
Indonesia coupled with the shortage of domestic supplies from
state-run Coal India Ltd.

The decision was welcomed by Indian power companies, but
also immediately raised fears of legal disputes that could
ultimately hurt, rather than help, the sector’s recovery.

“Yes,” said Haryana state Power Minister Ajay Yadav on
Thursday when asked whether the government was planning legal
action.

“Because we have signed an agreement with them (Adani). We
will make the payment as per the rate at which we have signed
the agreement,” he told Reuters by phone.

Asked whether Gujarat would also challenge the order, state
energy secretary D.J. Pandian told Reuters: “All options are
open.”

A spokeswoman for Adani Power declined to comment.

HURDLES AHEAD

Adani’s shares rose by nearly 15 percent on Wednesday after
the regulator’s announcement. Adani called it a “landmark” order
that would restore investor confidence in the power sector.

Tata Power Company Ltd, which has a similar case
still pending with the regulator that could be heard within
days, said the order would revive several under-utilised or
abandoned project proposals.

But even before the Haryana minister spoke to Reuters, some
were concerned the ruling would bog energy contracts down in the
courts.

“Our initial checks suggest a hardline stance by
stakeholders which, if not softened, may result in a protracted
legal case, the outcome of which, at this stage, is difficult to
gauge,” Deutsche Bank said in a note.

India desperately wants to add more power capacity to plug
electricity shortages that sap the competitiveness of its
businesses and hobble Asia’s third-largest economy, where growth
has slowed to its worst pace in ten years.

But authorities have struggled to balance a need for the
private players in the infrastructure sector to make a profit,
while protecting the ordinary consumer in a country with
hundreds of millions of poor people.

“If we favour a tariff hike, we will be criticised for
favouring Adani Group. In case we don’t, the power sector
troubles will mount, and hit potential investments,” an official
in the Gujarat government said, speaking on condition of
anonymity. “We will have to tread very carefully,” he said.

A prominent anti-corruption activist is currently on a
hunger strike in New Delhi in protest against rising power
tariffs.

Moves to raise electricity prices are perceived as hurting
the country’s poor and the issue could prove a sensitive one for
Indian politicians, especially as national elections are due
within a year.

(Editing by Tony Munroe and Sonya Hepinstall)

The Dravida Munnetra Kazhagam (DMK) is based in the southern state of Tamil Nadu, and has often pressured the Indian government to do more to protect Sri Lanka’s minority Tamil population. It wants the Indian government to introduce stronger language into the resolution, including the use of the word “genocide”. The government has yet to give a response on what its position on the resolution would be.

The DMK has 18 seats in the lower of house of parliament that had been part of Prime Minister Manmohan Singh’s coalition, which already rules in a minority. Singh’s Congress party can continue to govern with parliamentary support from two other regional parties.

Finance Minister P. Chidambaram said the government was stable.

But the DMK’s withdrawal will make life harder for the government, which will now be even more at the mercy of smaller parties which are skeptical of economic reforms aimed at reviving stuttering growth in Asia’s third-largest economy.

It also heightens the chance that the government, which is due to hold national polls by the middle of 2014, could call a snap election if it is unable to push through any legislation.

The DMK leader, M. Karunanidhi, told a press conference the party would not offer outside support to the government and would withdraw its five ministers on Tuesday or Wednesday.

Indian bonds, stocks and the rupee fell on the news.

The government needs 271 seats out of 543 to survive any possible confidence vote. After the pullout of the DMK, the Congress alliance has about 235 seats, but they could narrowly survive any vote with the outside support of other parties.

(Reporting by Matthias Williams, Annie Banerji, Devidutta Tripathy and Nita Bhalla, editing by Ross Colvin)

The Dravida Munnetra Kazhagam (DMK) is based in Tamil Nadu, and has often pressured the government to do more to protect Sri Lanka’s minority Tamil population. It wants the Indian government to introduce stronger language into the resolution, including the use of the word “genocide”. The government has yet to give a response on what its position on the resolution would be.

The DMK has 18 seats in the Lok Sabha as part of Prime Minister Manmohan Singh’s coalition, which already rules in a minority. Singh’s Congress party can continue to govern with parliamentary support from two other regional parties.

Finance Minister P. Chidambaram said the government was stable.

But the DMK’s withdrawal will make life harder for the government, which will now be even more at the mercy of smaller parties which are skeptical of economic reforms aimed at reviving stuttering growth in Asia’s third-largest economy.

It also heightens the chance that the government, which is due to hold national polls by the middle of 2014, could call a snap election if it is unable to push through any legislation.

The DMK leader, M. Karunanidhi, told a press conference the party would not offer outside support to the government and would withdraw its five ministers on Tuesday or Wednesday.

Indian bonds, stocks and the rupee fell on the news.

The government needs 271 seats out of 543 to survive any possible confidence vote. After the pullout of the DMK, the Congress alliance has about 235 seats, but they could narrowly survive any vote with the outside support of other parties. (Reporting by Matthias Williams, Annie Banerji, Devidutta Tripathy and Nita Bhalla, editing by Ross Colvin)

At issue is this week’s apparent suicide of Ram Singh, the alleged ringleader in a case of gang rape and murder that horrified India last December.

Reuters was unable to ascertain the full details of what went on behind the walls of New Delhi’s Tihar Jail and in Singh’s cell. But a jail official and one former inmate said it was impossible to keep a constant watch on prisoners in the sprawling and over-crowded facility.

“Committing suicide is very easy there. It’s not a big deal at all,” the former inmate told Reuters. He said he was imprisoned for two-and-a-half months last year and kept in the same building as Singh.

The man, who did not want to be identified, said an informal system of prisoners keeping watch over each other had broken down. Few cells had electronic surveillance, while guards came by only every half an hour or so.

A spokesman for the jail, Sunil Gupta, said it was impossible to monitor the prisoners tightly enough to prevent suicides.

“It is easy and it’s not unusual for suicides to happen in jail,” Gupta said in an interview conducted inside Tihar.

India was horrified by the crime Singh and five others were accused of – the gang rape of a 23-year-old physiotherapy student on a bus. She and a male companion, who was beaten unconscious, were thrown out of the bus, naked and bleeding, after the assault. The student later died of her injuries.

Thousands of people held protest rallies for days, condemning the police for failing to prevent such crimes and demanding the death penalty for the assailants.

Singh’s death is now seen as another failure of the system.

“You could not prevent the rape,” said Suhas Chakma, the director of the Asian Centre for Human Rights.

“You cannot protect people outside, you cannot protect people inside the four walls of the prisons. It indicates absolute failure of the rule of law and also the governance system.”

Some rights activists have raised fears that Singh’s death could undermine the trial of the other four adults, now underway. The final accused is a juvenile, who is being held and tried separately.

However, legal experts say the death will not affect the prosecution’s case.

NOOSE FROM HIS MAT

Authorities in Tihar said Singh hanged himself early on Monday morning in his cell. They said he made a noose from the mat he slept on and hanged himself from a grille in the ceiling.

Singh’s father said he did not believe his son had committed suicide and suspected that he had been murdered. “He confessed about his mistake, then why would he commit suicide? He was prepared for any punishment the government would have given him,” Mange Lal Singh said.

Authorities have conducted a post mortem on Singh’s body and a medical officer who had direct knowledge of the findings told Reuters there were no other injuries other than those associated with asphyxiation.

“As per our study, it seems and it appears to be a case that is suicidal in nature,” the source said.

Tihar has won a reputation as a model prison, with counseling, yoga classes and meditation rooms for inmates.

However, many ills linger just below the surface. It remains India’s largest prison and more than 12,000 prisoners are packed into a facility meant for 6,250.

“We cannot put one guard with one prisoner, we can’t even put one guard with ten prisoners,” said Gupta, the prison spokesman.

“We have 12,500 prisoners here. If an inmate wants to go to the bathroom, he can easily commit suicide there. Even though we are watching, these cases can take place because security cannot solve everything.”

The former prisoner described a system in Tihar where inmates were expected to take turns to keep watch on each other at night to prevent suicides, a system introduced after a prisoner killed himself in the jail last year.

“So if 10 people are selected for this night watch, then each person has to stay awake one hour. But nobody follows that system, we all used to fall asleep,” he said.

Singh was kept in a cell with three other prisoners. One of the others was inside for murder, another for robbery, Gupta said. During the night of Singh’s death, there was one prison guard who was doing a round of checking 20 cells, which takes about half an hour to complete.

“There is no lapse in security,” Gupta maintained, saying that murder was out of the question.

There was no electronic surveillance inside the cell, he said. But he added the other four men being tried in the case have now been moved to cells in Tihar with closed-circuit televisions.

(Additional reporting by Atish Patel, Anuja Jaiman, Sharat Pradhan and Satarupa Bhattacharjya; Editing by Raju Gopalakrishnan)