A retired Principal Auditor-General of Bihar, Santosh Kujur, remembers chatting with a bank manager in one of the coalfields. The salary accounts of all Coal India Ltd (CIL) managers were maintained in his branch, he was told, but very few of them ever withdrew any amount. The imputation: they had other sources of income.
That was 15 years ago, and even today little proof is required to convince people of rampant corruption in coalfields. Indeed, both the Intelligence Bureau and the Central Bureau of Investigation have sufficient evidence of corruption in mining to stall Parliament for the next several years!
Ironically, so does the office of the Comptroller and Auditor General of India. Several CAG reports in the past have exposed corruption in mining, but without making much of a dent in the system. So, what exactly is new in the report tabled in Parliament on August 21?
Coal mining was nationalised in 1972-73 and the government has ever since enjoyed a virtual monopoly. Largely government-owned (90 per cent share), CIL produces 82 per cent of the coal produced in the country. But with China producing five times as much coal as India, and the demand for electricity only rising, the government clearly has no alternative but to loosen its hold and invite the private sector into mining coal.
But even as the government persuaded the private sector to invest an estimated $60 billion during the last six years in power plants, there is just not enough coal for them. Importing and shipping coal remains an expensive option, and CIL is unsure of its ability to supply coal required by the new plants.
Why is coal not being mined faster then? Among the many reasons are the difficulties related to acquiring land, removing encroachments, displacing people, rolling out relief and rehabilitation for the displaced, obtaining myriad clearances while reaching out to remote areas, often with poor communication, some even being Maoist strongholds. With neither the police nor the government agencies able to penetrate many of these areas, it’s unrealistic to expect the private sector to do that.
Ace hitter Comptroller and Auditor General Vinod Rai. (Photograph by Narendra Bisht)
In a perceptive report in January this year, The Economist summed up the odds when it commented, tongue-in-cheek, “(Coal mining in India) also involves multiple states, government ministries, regulators, mandarins, politicians, tycoons, environmentalists, villagers, activists, crooks and bandits.” As if all this isn’t enough, the government now has to cope with the insinuations of its chief auditor, the CAG, that it allowed the private sector to run away with windfall gains worth Rs 1,86,000 crore by not discriminating between government-owned and privately owned steel, cement and power companies.
When the beleaguered government sought to point out that auctioning coal blocks would have pushed production costs higher, and put electricity, cement and steel beyond the reach of the common man, angry critics denounced the bankruptcy in its thinking. Higher electricity costs were actually desirable, fumed a critic on a popular website, because they would then “force the government to search for cheaper fuel and persuade the people to save electricity”.
The audit report does not, however, question the government’s anxiety to ensure a regular, guaranteed supply of coal to steel, cement and power plants. Indeed, the report keeps citing the Union power ministry’s stated objective of ‘Power to All by 2012’ to buttress the point that the mission actually failed, power generation stalled and coal production dipped, despite all efforts of the government.
The report would have us believe that this was primarily because undeserving companies in the private sector were favoured in the allocation of captive coal blocks. There was no transparency and no evidence that a proper evaluation was done by screening committees to compare the relative strengths of applicants, it observes and perhaps rightly so.
But what it loses sight of is the fact that since 1972-73, when coal mines were nationalised, very few private companies, acquired any experience in mining coal, with the exception of those like the Tatas who have been mining coal even longer than CIL. For new entrants into the power, steel or cement sectors, it was, therefore, impossible to establish their credentials in coal mining. One also suspects the new players were caught in a chicken-and-egg situation, wherein they would have found it impossible to raise loans from banks without demonstrating that they had an assured supply of coal.
Mining is also a messy business at the best of times and requires huge investment. A single dragline, a heavy machine used to remove the earth stones, plants (called ‘overburden’) that cover coal seams, could often cost Rs 75 crore, depending on specifications. And that is not all. Companies need to bring in mining engineers, geologists, metallurgists and a host of other skilled and unskilled manpower before they can mine a single tonne of coal, leave alone make any profit.
The mammoth operation also takes time to take off. Even the CAG report acknowledges as much. It records that the average gestation period between allocation of coal blocks and production is four years even for the CIL, which has been in the business for the last 37 years. One can imagine how much more time it might take for a private company to start operations, specially if it is a new entrant.
The CAG report, significantly, looks at only the 57 coal blocks allocated to private companies and not the 70-odd more blocks allocated to government-owned companies in the same period. The report says nothing on the performance of these other coal blocks, whether there have been delays by government companies as well etc. No comparison, therefore, can be made. Shouldn’t the auditors have looked at these coal blocks also to present a complete picture?
But then the CAG’s agenda was different. The burden of its argument was that a precious natural resource was given away to private companies so that they could reap windfall gains. Had these private companies been forced to bid for the coal blocks, the government could have collected at least a part of this windfall, the report argues.
The report also errs in overlooking the economic climate before 2008 and after. India was shining in 2004, the global economy was booming, and China was buying coal and iron ore like there was no tomorrow, pushing up international prices. It seemed growth could be sustained at 10 per cent per annum forever and there was a clamour for stepping up electricity generation, cement and steel production to fuel such growth. The government alone was in no position to ramp up the numbers and the philosophy in any case had changed. It was no longer deemed to be the government’s business to produce steel or power. What was the private sector there for?
The boom psychology prevailing then explains the clamour for coal blocks, just as the slump after 2008 explains why the ardour cooled so fast and why allottees dragged their feet on starting production. People who were buying coal mines in Australia and queuing up for coal blocks at home would have been foolish had they not slowed down after 2008.
The final irony is that the government, in February 2012, actually did what the CAG wishes it had done in 2006. Coal blocks would henceforth be put on auction, following changes in the law. Whether it succeeds in preventing cartels and malpractices and if it draws private players into mining are questions that can only be answered in hindsight, in the future.
There is a strong case both for and against auction of coal blocks. The next few years will test which proves better. One only hopes it does not slow down the economy. But the damage may already have been done.
The piece Coal, Tarred tried to defend the indefensible—a hare-brained, patently crooked scheme which gives away valuable coal mining rights practically free to people handpicked by a so-called screening committee. How could a prime minister with such high economic credentials not see the obvious inequity, unfairness and wrongdoing in the allocations?
Shyam Sethi, New Delhi
The PM’s definition of a “transparent” process of allotment is rather unique. All it takes for a close relative or associate of an influential minister to corner a licence worth several thousand crores of rupees is to have the said minister write a letter to the PM and be invited in two days’ time to the screening committee. Before you know it, the licence is yours!
Manish Anand, New Delhi
All statutory audits of private/public companies are conducted, reviewed and published on an annual basis. Why do the CAG’s audits take five years or more?
R.V. Subramanian, Gurgaon
Unlike in the private sector, government audits are carried out at a very leisurely pace, resulting in a case of locking the barn after the horse has bolted. Delivered in hindsight, it’s something those in the line of fire and those who have to perform don’t enjoy.
R.C. Acharya, on e-mail
In the ‘Coalgate’ season, I am reminded of the defence mounted by the late N.K.P. Salve, a chartered accountant, MP and minister, on the CAG’s report on the Bofors deal. Carried as a full-page article in The Hindu, its gist was that the CAG had no power at all to go into a defence contract between the government and a foreign agency. Better sense prevailed, and the cbi framed charges against Bofors. Section 13 of the CAG Act empowers the CAG to audit usage of funds from the Consolidated Fund of India, contingency funds and also all trading, manufacturing and profit-and-loss accounts, besides balance-sheets related to any department of the central or state governments. So there is nothing wrong in the CAG auditing coal-block accounts; however, nowhere does Section 13 say the CAG is to “adjudicate” or that its report is binding on the government. The difference between the meanings of “audit” and “adjudicate” is like chalk and cheese, and accordingly, the government is authorised to come to its own conclusions through the machinery provided on the rules of procedure of Parliament or the legislature, as the case may be.
Justice P.P. Bopanna (retd), Bangalore
Every asset has a value based on the future cash flows it can produce. This is a sound principle of evaluating every asset or resource. There is nothing wrong with the CAG applying this rule. In fact, instead of the global price of coal, the CAG has erred on the side of caution and applied the CIL’s price.
To the suggestion that an auction in 2004 would have led to higher costs to the consumer in steel and electricity, a question. Did the government stipulate any pricing control as part of this allotment? If not, were they just expecting the corporates to ignore the shareholders and sell coal cheaper just because they could?
''However, a PMO note accessed by Times Now clearly shows that it was the Prime Minister's Office (PMO)which decided to persist with the controversial practice of allocating coal blocks by the screening committee procedure despite concerns expressed by the coal ministry.
The Union coal ministry had argued that allocations by the screening committee were criticized for lacking transparency and objectivity, and said that inviting competitive bids will help the government tap for public purpose a part of the "windfall profit" that accrued to companies which got captive coal blocks under the screening committee procedure.
The PMO held a meeting chaired by principal secretary to the Prime Minister, T K A Nair, on July 25, 2005, to discuss "competitive bidding as a selection method for allocation of coal and lignite blocks for captive mining". The meeting decided that the "ministry of coal may continue to allot coal blocks for captive mining through the extant screening committee.
The note points out that minutes of the PMO meeting were approved "by the PM in his capacity as the minister of coal".
Countering the argument, Javed Usmani, a joint secretary in the PMO, said, "A rational bidding process would ensure that the cost of coal through competitive bidding route would be less than that of coal sourced from Coal India Ltd or imports."
The coal ministry also pointed out that competitive bidding "will only tap part of the windfall profit that accrued to the companies which were allocated captive coal blocks under the screening committee procedure for public purposes".
After UPA II came into power with the Congress bagging more seats all the guys in the government thought there is no more viable opposition to check them and its free for all.The congress policy has always been to create black money and allow others as well allow to make dirty money.The UPA thought they can do anything afterall they have committed judges,commited bureucracy,committed investigating agencies under thier control.But for the RTI activists and some select media and the proactive judiciary no scams could have seen the light.And the glaring example is the case of Jagan Reddy from Andhra Pradesh.If he was to be in the Congress till jnow his millions of dirty money would not have been known by any one.
Congress is following the same tactics of saying the CAG is erraneous.It shows its desperation when it tries to question a constitutional body.
"Has the CAG been too simplistic and selective in its assessment?"
The findings and conclusions of the CAG report are a pointer, and it is the responsibility of the incumbent government to take it forward by ordering a thorough investigation into the alleged mismanagement and fraud. And the government is duty-bound to do it, not only to recover the loss to the exchequer but also to prove that it is above board.
I have been persistently asking and Outlook has been persistently dodging the question. What happened to the additional evidence Outlook was supposed to provide on the Tata land deal that would have implicated Arun Shourie?
It is difficult for me to understand how an Audit Report, which is currently being discussed, questions an event/decision taken five years back. I would have thought all Annual Audit Reports refer to a period of last one year. The CAGs office, staffed by thousands of employees, I think, must be conducting Audit on an annual basis It would be easier to take corrective measures for more recent lapses (rightly pointed out by CAG)!
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