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HT explains “coalgate”

The CAG report said that the move benefited the companies by allocating them 57 coal blocks without auction. The delay in introduction of the process of competitive bidding has rendered the existing process beneficial to private companies. According to CAG estimates, private companies may have gained to the tune of Rs. 186,000 crore (based on average cost of production and average sale of price of opencast mines of Coal India Ltd (CIL) in 2010-11). The national exchequer could have earned a part of this if the coal blocks were allotted in a transparent auction-based system.

If true, this would be even larger than the 2G spectrum scandal. However, the CAG appears to be moving away from this number, as TOI reports:

The estimate of Rs 1.86 lakh crore mentioned in the CAG report on Coalgate as “windfall gains” to private players who bagged coal mines allocated by the government without bidding is not sacrosanct, according to senior sources in the auditing agency.

“We have never claimed that our estimate is not open to debate,” sources said, adding that even the expression “windfall gains” was not that of the auditor. “We have only quoted the then coal secretary saying so,” they said.

When an auditor’s office says that figures they report could be wrong, one might be justified in being somewhat suspicious. So a sanity check is in order. Coal India’s gross sales in 2012 was reported to be INR 521 billion (1 billion just happens to be 1 lakh crores). This gave a reported profit of INR 83.12 lakh crores. If the losses are what they are estimated to be, then they are less than 2.23% of the profits. That would be possible, and significant. But, as the report above says, it is not at all certain that this is the amount lost.

Another part of the sanity check is by taking account of the production of coal. CIL produced 431.34 million tons of coal in 2010-11 (this estimate is consistent with the CAG’s numbers). In the same report, the CAG claims that the allocated blocks produced 34.64 million tons of coal in that year. This is 8.03% of CIL’s annual production, and prima facie one might expect that the profits should have been in the same proportion. The four-fold lower profit figures quoted by the CAG perhaps takes into account the different production costs. If so the implication is that CIL is being heavily subsidized by us, the taxpayers.

The political fall-out was summarized by TOI:

BJP is targeting Prime Minister Manmohan Singh demanding his resignation since he was in charge of the coal ministry during the allocations questioned by the CAG. “This is not a matter that can await examination by the PAC. The PM is culpable for the delay in introducing transparent auctions,” BJP deputy leader in Rajya Sabha Ravi Shankar Prasad said.

The Hindu reports:

The BJP on Wednesday remained firm on its demand for Prime Minister Manmohan Singh’s resignation on the coal allocation issue and insisted that the only way to end the present impasse in Parliament is for him take responsibility for the Rs. 1.86 lakh crore loss suggested by the Comptroller and Auditor-General of India.

NDTV reported the government’s response:

The government reiterated today that when it had suggested allocating mines through an auction, a series of states, some of them governed by the BJP, had objected, arguing that this would push coal prices up and adversely impact industrial development in their states. “Rajasthan, Chattisgarh, Jharkhand, Odisha, West Bengal… they all aggressively resisted a bidding process,” said Coal Minister Sri Prakash Jaiswal.

The continued disruption of the house seems not to be supported by all parties. Z news reported:

Advocating debate on CAG reports including on the coal block allocation, Samajwadi Party on Wednesday said functioning of Parliament involves public money and should not be wasted on disruption of the House.

“MPs are signing the register and going home. By signing the attendance register they become eligible for daily allowance,” SP leader Mohan Singh told reporters outside Parliament.

IE reported that a BJP ally also is for a parliamentary debate:

D(U) appeared to have broken ranks with NDA over the strategy of protest against the government on the CAG report by expressing reservations against disrupting Parliament and showing its readiness for a debate, which the BJP does not seem to be willing for.

Given the facts as we know them, an insistence that the parliament not be allowed to function until the government resigns seems to be unsupportable. What is needed is a clear-headed discussion of the problems pointed out by the CAG. These were summarized very well by Pratap Bhanu Mehta in an article in IE:

From a governance standpoint, the CAG’s reports mark a breakthrough. First, they shift the focus of accountability from merely expenditure to a framework of justifications. Corruption is not just about siphoning off government expenditure. It is about creating frameworks, and foregoing policy possibilities that arbitrarily benefit private parties at the expense of the public. It also looks at opportunity costs of policies. The CAG is not saying that policy is not the government’s prerogative. It is saying that these policies must meet the test of public reason. They must be defensible in light of all the available arguments. The government’s allocation of coal blocks does not meet this standard. Its reasons for not auctioning are weak; there were no insurmountable legal obstacles against auctioning. But more importantly, and this point is being missed in breathless defences of government, the policy does not meet even the government’s own standards. Even if the government did not want to go the auction route, the process by which particular private players were selected has the unmistakable odour of arbitrariness about it. In the case of captive blocks, other uses were authorised after the fact and without adequate justification. That alone would be grounds for a probe.

Further, the government’s own claims for the reasons behind these allocations do not stand up. The government says we allocated them because Coal India Limited was not producing enough coal. True enough. But the shocking fact is that almost none of the private players produced much coal either. They unconscionably hoarded a national asset. If you wanted private players, the Coal Mines (Nationalisation) Act could have been amended. After all, this debate has been going on for more than six years; various officials had proposed better ways of allocating, and no convincing reasons have been given for overriding them.

The Prime Minister’s Opinion

IBN Live carries the full text of the Prime Minister’s statement to the Lok Sabha on 27 August. An important segment is:

14. The CAG says that competitive bidding could have been introduced in 2006 by amending the existing administrative instructions. This premise of the CAG is flawed.

15. The observation of the CAG that the process of competitive bidding could have been introduced by amending the administrative instructions is based on the opinion expressed by the Department of Legal Affairs in July and August 2006. However, the CAG’s observation is based on a selective reading of the opinions given by the Department of Legal Affairs.

16. Initially, the Government had initiated a proposal to introduce competitive bidding by formulating appropriate rules. This matter was referred to the Department of Legal Affairs, which initially opined that amendment to the Coal Mines (Nationalisation) Act would be necessary for this purpose.

17. A meeting was convened in the PMO on 25 July 2005 which was attended by representatives of coal and lignite bearing states. In the meeting the representatives of state governments were opposed to the proposed switch over to competitive bidding. It was further noted that the legislative changes that would be required for the proposed change would require considerable time and the process of allocation of coal blocks for captive mining could not be kept in abeyance for so long given the pressing demand for coal. Therefore, it was decided in this meeting to continue with the allocation of coal blocks through the extant Screening Committee procedure till the new competitive bidding procedure became operational. This was a collective decision of the centre and the state governments concerned.

18. It was only in August 2006 that the Department of Legal Affairs opined that competitive bidding could be introduced through administrative instructions. However, the same Department also opined that legislative amendments would be required for placing the proposed process on a sound legal footing. In a meeting held in September, 2006, Secretary, Department of Legal Affairs categorically opined that having regard to the nature and scope of the relevant legislation, it would be most appropriate to achieve the objective through amendment to the Mines & Minerals (Development & Regulation) Act.

In paras 20-22 the prime minister then goes on to detail who opposed the idea of competitive bidding and for what reasons:

20. As stated above, major coal and lignite bearing states like West Bengal, Chhattisgarh, Jharkhand, Orissa and Rajasthan that were ruled by opposition parties, were strongly opposed to a switch over to the process of competitive bidding as they felt that it would increase the cost of coal, adversely impact value addition and development of industries in their areas and would dilute their prerogative in the selection of lessees.

21. The then Chief Minister of Rajasthan Smt. Vasundhara Raje wrote to me in April 2005 opposing competitive bidding saying that it was against the spirit of the Sarkaria Commission recommendations. Dr. Raman Singh, Chief Minister of Chhattisgarh wrote to me in June 2005 seeking continuation of the extant policy and requesting that any changes in coal policy be made after arriving at a consensus between the Central Government and the States. The State Governments of West Bengal and Orissa also wrote formally opposing a change to the system of competitive bidding.

22. Ministry of Power, too, felt that auctioning of coal could lead to enhanced cost of producing energy.

ET reported the BJP’s reaction outside of the parliament:

Stepping up attack after Manmohan Singh rejected CAG’s observations on coal block allocation, BJP today alleged that he was directly responsible for causing delay in amending laws on auction with the aim of bringing financial benefit to Congress.

“Congress has got a fat sum from coal block allocation, that is why this delay (in amending the laws) was caused. My charge is that huge revenue was generated but it did not go to the government and went to the Congress party,” Leader of Opposition in Lok Sabha Sushma Swaraj told reporters.

The core issue here is that crony capitalism is wrong in a democracy and all attempts should be made by constitutional bodies and our elected representatives to root it out. The BJP has made a charge which hits at the real core of the issue. However, it should take it up in the parliament instead of frittering away time.

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Written by Arhopala Bazaloides

August 22, 2012 at 12:18 pm

One Response

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  1. […] still at large. Political parties have forgotten this major law-and-order problem and gone on to coalgate. But the problem has not disappeared, reports Outlook: “This was orchestrated to divert […]


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