Too smug a response to Coalgate

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P. Chidambaram…smooth talk. — Rajeev Bhatt
P. Chidambaram…smooth talk. — Rajeev Bhatt

Flush from a combination of factors working in his favour — a clean chit from the apex court on his role in the infamous 2G scam, restoration of the more glamorous finance ministership and the shunting out of Pranab Mukherjee — P. Chidambaram is back, voicing his views in dulcet tones.

Where is the loss when coal is cocooned safely inside Mother Earth, he asked the opposition and the CAG with injured innocence. It has not occurred to him that the valuations of shares — the major underlying asset being coal, which was obtained for a song — of the steel and power companies benefiting from the government largesse shot up sharply, much to the joy of their promoters. This in a way is the common thread between the two giant scams — 2G and coal.

In 2G too, the shares of the promoter-companies started commanding stratospheric premiums on the back of spectrum obtained dirt cheap from the government. And these shares were substantially unloaded to the foreign telecom companies who became the joint venture partners.

It has furthermore not occurred to him that there was no claw-back clause, usually written in when precious national resources are given away, to pummel the beneficiaries with.

It has not occurred to him that there was no condition attached to the coal allottees as to guarding of the price line of their own finished product, steel and power.

In other words, the government’s argument that low fixed price for allocation to select parties a la the first-come-first-served criterion in 2G was necessary to guard the price line for the ultimate consumers does not carry conviction.

This is for the simple reason that there is no guarantee that they would sell power and steel cheap or at a fixed price, and would not hike the prices ever. That much of the coal bartered away has not in any case been extracted is also no defence inasmuch as the same can be mined anytime.

In other words, coal might be ensconced in the womb of Mother Earth, but its cost has been artificially lowered to the allottee for all times to come with no obligation on him to mind consumer interests.

There could have been an extenuating circumstance for this largesse had the allottees in return been enjoined to give a sliver of their revenue to the government ad valorem so that the government can use it for public spending.

Hail the CAG

In a milieu where auditors are pilloried for their shoddy work, the CAG in India stands out as an island of excellence. But since his work embarrasses the government no end, he is being asked not to exceed his brief. The popular refrain in the ministerial circles is he has no business to question policies. Touché!

In the name of not questioning a policy and sticking to the straight and narrow of traditional auditing, he is asked to look the other way even as the nation’s resources are either bartered away or plundered. Even commenting on proper accounting of revenue and expenditure, which admittedly is well within his remit and rights, calls for examining whether what ought to be received has been received or not.

Can a company management say that it is the policy of the company not to account for sale of scrap to the extent of 75 per cent in the books, with the money taken outside the books for various purposes -- and that the auditor should not comment on scrap?

Auditors’ credibility

The reason why auditors of private sector companies are suffering from a credibility crisis is they often play ball with the promoters and gloss over shenanigans so long as their tenure is continued and fees increased.

In the milieu of such general decadence, it is amazing that the CAG is criticised for his alleged overzealousness when what he deserves is applause.

Granted, he might have been remiss in not discounting the loot to its present value but that does not absolve the facilitators of the loot of their guilt. The Net Present Value (NPV) of the revenue foregone for the government, say, is Rs 86,000 crore and not Rs 1,86,000 crore, the figure trotted out by the CAG, but does that make the government any the less guilty?

A white-collar criminal cannot take solace from the fact in the trial that the magnitude of loot has been scaled down from Rs 500 crore mentioned in the charge sheet to Rs 250 crore on examination of evidence.

Selective allotment of scarce and precious natural resources raises the hackles of both auditors and other conscience keepers. If auction is found inappropriate, revenue sharing must be insisted upon as a viable alternative, with the bidder offering the highest share of revenue getting the licence or whatever is on offer.

In Coalgate, the weakest defence is that the benighted tribals would get 26 per cent of the share of mining profits from coal and hence steel and power companies benefitting from the lax allotment norms have not after all been favoured.

The truth is: it is one thing to share revenue but quite another to share profits, with the latter capable of either vanishing completely or chopped off substantially thanks to licentious accounting practices. The CAG perhaps would not have been critical had the route adopted been auction or revenue sharing.

(The author is a New Delhi-based chartered accountant)

(This article was published on August 28, 2012)
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You are absolutely right, Mr. Murali. We all remember that Kapil Sibal and others responded the same way when first 2G scam came out. We have to wait now for Subramanyan swamy to find evidence of kick backs and approach the courts for this hurt innocence to disappear. Unlike in 2G the companies who got allotment are yet to foreign partner and get 100 times more for their share like what Uninor paid.

from:  Krishnan
Posted on: Aug 29, 2012 at 13:52 IST

Mr. Muralidaran must note that coal was allocated to power companies as raw material and the power generated is completely sold to State Electricity Boards at predetermined price only. Without supplying coal, power companies cannot be expected to generate power which has a huge demand from industry and domestic consumers. Therefore, the question of windfall profits, is, at best, an auditor's notion, but not supported by business reality. It would help for the author to verify his facts first.

from:  S. Muralikanthan
Posted on: Aug 29, 2012 at 14:28 IST

Mr.Muralikantan's response to the brilliant piece by Mr. Muralidharan
exposes his ignorance. When power generated is SOLD, the element of
profit arises and when cost of the input(coal) is pegged down as in the
present case, it results in excessive profit. Here the loser is the
Mr. Muralikantan, don't talk through your hat.

from:  sundara ram v
Posted on: Aug 31, 2012 at 20:36 IST
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