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CAG drags govt over coals

New Delhi, Aug. 17: The decision to allot 57 coal blocks to 75 cherry-picked private companies instead of ordering an auction has cost the exchequer Rs 186,000 crore, the government’s auditor has said.

This figure, presented to the Rajya Sabha in a draft report, is higher than the presumptive loss estimate in the 2G telecom scandal of January 2008 by about Rs 9,000 crore.

The telecom report escalated into a scandal amid allegations of misdemeanour by the then minister A. Raja. There is no hint as yet of deliberate wrongdoing in the allocation of coal blocks.

Two other reports were submitted today by the comptroller and auditor general (CAG). In one it blamed the government for leasing out land for the Delhi international airport to private operator GMR-led DIAL at a fraction of the potential price. In the other, Anil Ambani-owned Reliance Power was allowed to reap an “undue gain” — at the cost of the exchequer — by diverting coal from one project to another.

But it was the allocation of the 57 coal blocks between May 2005 and July 2009 to a clutch of private steel, power and cement producers that generated the greatest heat.

Ironically, only one of these coal blocks is in production today as a logjam over approvals has stalled the projects they are linked to.

The submission of today’s reports was devoid of the drama and angry rhetoric that had enveloped the 2G report in November 2010 but it gave the Opposition BJP the opportunity to once again denounce Prime Minister Manmohan Singh and his government.

“As the Prime Minister headed the coal ministry between July 2004 and May 2009 he should introspect over the CAG’s report and resign,” BJP leader Arun Jaitley said.

In the 2G report, the CAG had tossed up three widely divergent notional loss estimates based on different parameters and methodologies. This time, the auditor put out only one presumptive loss estimate.

The government had handed out 6,282.50 million tonnes of extractable reserves to the private companies, though the ministry of law and justice “had categorically mentioned on July 28, 2006 that the competitive (bidding) route could be adopted through administrative arrangements”, the report said.

Nominations by states and vetting by a screening committee that comprised top officials from several central ministries and coal-rich states formed the basis of allocation, the government said in defence.

It explained that auction could not be adopted because of opposition from Bengal’s then Left Front government and the BJP-ruled states of Chhattisgarh and Rajasthan.

“We couldn’t have gone ahead without the states’ concurrence,” said coal minister Sriprakash Jaiswal.

The states also feared that competitive bidding would raise the cost of coal and make new projects unviable.

Jaiswal said divergent views from the law ministry and opposition from states delayed an amendment to the Mines and Mineral (Regulation and Development) Act. Parliament passed the amendment in September 2010 and states dropped their opposition.

The coal minister said the auction of coal blocks would start soon.

Fractious figures

The auditor took the average cost of production of all grades of coal produced by Coal India (CIL) in 2010-11, which worked out to Rs 583.01 per tonne. To this it added an additional financing cost of Rs 150 per tonne.

It then took the sale price on an average basis for all grades of coal produced by CIL, which was estimated at Rs 1028.42 per tonne.

The difference between the two figures — the net gain — was determined to be Rs 295.41 per tonne. This figure was then multiplied by the extractable reserves estimated for each block. This computation yielded a financial benefit of Rs 185,591.34 crore for the 57 blocks as on March 31, 2011.

Jaiswal said the computation was misleading as it had used CIL’s average sale price and production costs. He added the cost of production for new mines would be much higher than CIL’s operations that began several decades ago.

He also pointed out that actual extractable reserves were far lower than notional reserves because of soil conditions, rocks and people living near mine blocks.

The minister said the coal mines allotted were meant for captive use. If the government extracted higher prices from the developers, it would have led to a sharp increase in the prices of electricity and steel.

Jaiswal asserted that neither the CAG nor the government could be blamed. “The government’s job is to decide policy and the fate of 120 crore people in the country. The CAG’s job is to pore over the books.”

“If there are any irregularities in allocation by any official (in the screening committee), the CBI will investigate,” he added.

He rekindled the debate over the CAG butting into policy matters instead of confining itself to government accounts, saying that the auditor was “going beyond its constitutional mandate”.


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