ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Coal for a Song

What does one make of the draft CAG report on the allocation of coal blocks?

Corruption, in official parlance, simply refers to payments in kind or in monies over and above official emoluments – “gratification” – that a holder of public office or a state employee receives for services rendered. So, for example, only the value of the gratification alleged to have been “earned” by A Raja – when he was minister for telecommunications and information technology in 2008 – for deliberately issuing 2G spectrum licences in a dubious first-come-first-serve manner based on 2001 prices rather than in an open auction process, is “corruption”. But such gratification, if at all, could, at most, only be a small fraction of the revenue forgone by the state, the latter, estimated by the Comptroller and Auditor General (CAG) at Rs 1,76,645 crore, which is based on a presumptive value of what the state could have realised had it gone in for an open auction to allocate the 2G spectrum licences. Now, surely this estimate is open to question and dispute, but the real issues should not be lost sight of – a dubious allocation process and failure to realise tens of thousands of crores of rupees of revenue that could have accrued to the exchequer from the sale of a state asset. What then does one make of the more recent (leaked) draft performance audit by the CAG that brings to light the irregular and arbitrary allocation of blocks of already explored coal deposits to public and private sector firms between 2004 and 2009, instead of openly auctioning them to the highest bidder? Here it is not merely just a union cabinet minister who is allegedly responsible but Prime Minister Manmohan Singh himself who, practically all through the relevant period, held charge of the Ministry of Coal.

Yes, Prime Minister Manmohan Singh was also minister of coal from late May 2004 and almost right through the term of the first Congress-led United Progressive Alliance (UPA) government and also, again, from late May 2009 when the UPA won a second term in office until a cabinet reshuffle in January 2011. He would have known, soon after he took office, that there was going to be a substantial difference between the price of coal as supplied by the public sector enterprise Coal India and the cost of production of coal from the (to be) acquired captive mines of merchant power plants set up by independent power producers, cement and steel plants, but he did not seem to agree that the Indian state as the legal owner of the natural resource on behalf of its citizens should make sure that a significant part of such benefit accrued to them. In its draft performance audit of the privatisation of coal blocks, the CAG has come up with two estimates of the “windfall gains” – estimate one, Rs 6.31 lakh crore (public sector enterprises Rs 3.37 lakh crore and private parties Rs 2.94 lakh crore) based on “prices prevailing during the year of allocation on constant cost and price basis”, and estimate two, Rs 10.67 lakh crore (public sector enterprises Rs 5.88 lakh crore and private parties Rs 4.79 lakh crore) if “the price prevailing on 31 March 2011 is considered”. In both cases, the difference between the price of coal and its cost of production is multiplied by 90% of the geological reserves to arrive at the estimate of the gains.

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