It’s a mind-boggling number — Rs 1.86 lakh crore. That’s 10 zeros after 186. And it’s got the Government cowering for cover, once again.
The Comptroller and Auditor General (CAG) — the national auditor — claims that this gargantuan figure is the gain private companies enjoyed from improper allocation of coal blocks by the Government.
If true, Coalgate, as this is being referred to by critics, will become the largest scam the country has seen, ever. The Opposition has mounted a ferocious attack and demanded the Prime Minister’s resignation. The Government has hit back and picked holes in the CAG’s calculations.
What it is
So, what is Coalgate about and how did the CAG arrive at its number? Simply put, the CAG claims that the Government’s delay — from 2004 to 2012 — in introducing competitive bidding for coal blocks resulted in massive gains to private companies. These companies were allocated coal blocks based on recommendations of screening committees.
This process, the CAG says, was not objective and transparent, and would have helped these private companies make huge gains. According to the CAG, a part of this gain could have been enjoyed by the Government if it had acted on a decision taken years earlier to introduce competitive bidding (auctions) for the blocks.
Another grouse is that, in most of these blocks, no mining has happened yet. This defeats the purpose of the allocation — the development of infrastructure using the coal. The coal blocks were allocated for captive mining to meet supply shortages of the key input in important sectors such as power and steel.
Arriving at the figure
The CAG computed the gains for private companies in 57 coal blocks. In this, it excluded blocks allocated to public sector companies and to joint ventures of public sector companies with private companies.
The auditor used the average cost of production (Rs 583.01 a tonne) and average sale price (Rs 1,028.42 a tonne) of opencast mines (where minerals are extracted from an open pit) of public sector miner Coal India in 2010-11. Then it considered Rs 150 a tonne as financing cost. This makes the net gain to the private companies Rs 295.41 a tonne. This, the auditor has then multiplied by extractable reserves of 6,282.5 million tonnes over the life of the mines. And voila! Rs 1.86 lakh crore.
Arguments, counters
With the Opposition breathing down its neck, the Government was quick to point out what it thinks are mistakes in the CAG’s report. It says that the use of average price and average cost for various coal grades is flawed.
But others point out that any financial projection has to be based on assumptions. Detractors also say that the CAG’s numbers are exaggerated since it has not discounted the computed gains to the present value. The value of a rupee received in the future is lower than what it is today, they argue. The counterargument is that discounting is not essential since the price and the cost of the coal has been held constant by the CAG over the years.
The Finance Minister explained how there was no loss if the coal was still with ‘Mother Earth’. This was a variant of the ‘zero loss’ argument put forth at the time of the 2G scam. Many lit into this statement saying that the companies did stand to make the gains as and when they extracted the coal.
There have been calls to de-allocate the blocks. But the Government is holding firm against such suggestions. The arguments seem set to continue. The ‘coal-lateral’ damage could be heavy.
Keywords: In the Limelight, Comptroller, Auditor General, CAG, national auditor, figure, Rs 1.86 lakh crore, gain, private companies, improper allocation, coal blocks, Government., Coalgate
Comments:
It is not about the exact figure of loss. The good thing that the CAG
has done is that they have pointed out that that the process adopted
by screening committee was NON TRANSPARENT, arbitrary and the
scrutiny/evaluation was not documented sufficiently. How can the
polititicians do that? Is it their personal money? Were there people
with a known professional calibre who could do justice to this job? I
am not suggesting a RADICAL REDUCTION in democratic bowers of elected
representatives. A distinction can be made between “In principle
decisions and executional powers” In principle decisions can always
remain with politicians.
Why should a elected representative be allowed to meddle in whom a
road repair contract should be given to.? Hoer his right and powers
for a in principle decision should be honoured which is that
budgetary allocation, priority to road repairs etc but why should he
have a say in which contractor should the job be given to?
Most will agree that the constitutional bodies like judiciary,
election commission and CVC have done better job than elected
representatives.
It is not a short-tem issue between Congress and BJP. Why is that all
the media debate and attention focussed on only the short term
problems and practically none on LONG-TERM measures?
A year back TOI had proposed concretely a Janlokpal bill which I
thought was even better than Anna’s. Why are they completely silent
on that? Why is no one talking about what the long term measures
should be, and how to achieve a speed in their implementation? Even
slow speed can be damaging. Poverty alleviation/education spread can
be slow, threat from Chinal can be dangerously more powerful if the
difference in fundamental growth increases rapidly.
Any way, Why do media and the public allow 90% of the agenda for
debate to be set by politicians? It is not a short-tem issue between
Congress and BJP. Why is that all the media debate and attention
focussed on only the short term problems and practically none on LONG-
TERM measures? Let ur bring this figure from 90% to 60%.
In estimating loss CAG ignored the gains to Government.(1)Suppose, bidding had realised higherprice, companies would have taken that much additional loan, shown in quartly statements, and reduced the Profit before tax, and thus paid less tax to government. (2) had that much money been taken as loan from banks, there would have been less money supply from for other activities which have been hampered and thus various taxes to government. (3) Bids are based on government estimates coal reserves. If the estimates prove less on exploration, how much money government would need to pay back (read the story of Coal Based Methane reserve estimastes, in Businessline dated 5.9.2012.(4)CAG has not estimated the implication of less time taken in the process, which gave earlier employment to several. Their increased spending has acrued taxes to government.Also earlier generation of power has similar effect down the line. It is to understan complicated nature by the CAG also
It is first time that a CAG has dared not to overlook huge Govt. bunglings. For me
he is a 'Bharat Ratna' ( obviously no politician will recommend one for him). Such
level of integrity holds some hope for a society as corrupt as ours.
The disappointing part is that no Government system of checks and balances or
even the media could not detect any such irregularity.
It is only through RTI by few dedicated citizens and court interventions some
tangible actions have been taken
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