Union Information Technology and HRD Minister Kapil Sibal explains Aditi Phadnis the issues arising out of the Comptroller and Auditor General (CAG) report on coal block allocations
What in the CAG report is the government most worried about?
What the CAG has done is made a set of certain assumptions which are in the nature of policy.
Such as?
CAG believes that the only way to deal with a distribution of a natural resource is through the process of auction.
If a government does not follow that process, which in his view, is the only way to discover value of a resource – to the extent that it is given away without extracting its ‘full value’ a loss has been caused to the exchequer. This logic has been applied to 2G spectrum as well as allocation of coal.
On the face of it, this is a premise hard to disagree with…
But, there are some natural resources which have been governed by a certain policy in the past. Coal, for instance, was nationalised in India. Because of this, it cannot be sold in the open market.
Separately, you can use coal to produce power, steel or cement.
Therefore, in the context of the previous policy, coal was an input for the production of electricity, cement and steel.
The policy since 1993 was to allocate an input at source of production of the end product. Coal as a mineral is found only in a few states – Jharkhand, Odisha, Chhattisgarh, West Bengal, Madhya Pradesh, Rajasthan (where it is lignite).
Each state government since 1993 has argued that allocation of coal must be done in such a way that the coal mined in the state is used as an input in the same state. Therefore, chief ministers were consistently opposed to the auction of coal in their state.
What is interesting is that it was the United Progressive Alliance (UPA) government in 2005 which was exploring the possibility of competitive bidding in the allocation of coal mines. From 1998 to 2004, while the national Democratic Alliance was in power, they were all for coal for captive consumption.
When the issue of competitive bidding came up the chief ministers of Rajasthan, Odisha, Chhattisgarh – there are letters to this effect – opposed this process in writing.
Now, the law itself has been amended in February and the bidding documents are being prepared with details of how auctions will take place and the interests of the states are protected.
Consequently, all that the UPA government did was to follow an extant policy. Attempts to change it to competitive biddings were made via legislation by Parliament in 2012.
What about the charge made by CAG that there was a loss to the exchequer because the government delayed on the auction route?
Of the 57 coal blocks allocated, only one produces coal. To say that there is loss to the extent of Rs 1,86,000 crore is flawed. That’s one part.
The next is, in the power sector, for instance, electricity produced with coal as an input is sold to the State Electricity Boards (SEBs). If the input cost goes up as a result of auction of coal, the cost per unit of electricity to the consumer per unit is naturally much higher. Therefore, again, the question of loss doesn’t arise.
It is a matter of policy whether input – whatever it may be – should be given in a manner to result in lower prices/tariffs for consumers. To show that input should be auctioned is again flawed logic.
Steel and cement are not affected by the same logic because here, there is competition in the open market. But, once coal is auctioned, higher prices of steel and cement are inevitable. Both these are important element of infrastructure growth and both contribute to inflation.
There are complex economic issues at the heart of this argument. Simplistic interpretations of loss loses sight of several economic issues.
This argument is reflected in some articles by economists who have questioned the method of calculating the so-called loss. Some assumptions made here are also flawed.
For example?
For example, Coal India has to incur a certain price in extracting coal and selling it at a certain price. The difference between the cost of extracting coal and selling it is the extent of profit – which is sought to be applied to captive plants when mining is yet to take place. It takes upwards of 36 months to extract coal. Moreover, the entrepreneur has to access technology at a cost, he has to borrow from banks and high interest costs in areas riven by Left extremism. Coal India has mines that are open cast, which yield high-quality coal. It has no cost of interest. You cannot compare apples and oranges.
Moreover, blocks which were rejected by Coal India were given to these applicants. So you cannot apply gains of Coal India and extrapolate those to the allottees of mines which were to be used for captive purposes.
That process is also flawed.
The question here is of cronyism in allotment…
Having said all this, governments should have a more transparent way of distributing national assets. The Prime Minister has to be congratulated, instead of being vilified and targeted. He is the only person who said in 2005 that there must be a transparent system of allotment.
As for charges of cronyism, this doesn’t take away from individual cases where there might have been some wrongdoing or suspicion of favouritism. Those cases are being investigated by the Central Bureau of Investigation (CBI). If wrongdoing is found, action will be taken according to the law.
Let us not forget that proposals for allotment originate from the state government. There is a screening committee where the chief secretary of the state represents the state.
It is inaccurate to say the Congress was choosing allottees. In fact, as it so happens, almost all the states, where allotments were made, were ruled by the Opposition. This is not to say the allocation was right or wrong, it is only to say this was the process.
In fact, the law ministry, after states had opposed auction of coal blocks, said the Centre could have changed the procedure by an executive order. But, we decided not to because that would have amounted to riding roughshod over the states. It could also have been challenged in Court.
Laws can be changed only if states are on board. The National Counter Terrorism Centre (NCTC) is stuck because states, having supported it, now no longer do so. Education bills, GST… look at the way they are stuck. We must have a debate on this. How can obstructing the Parliament ever going to resolve these issues? By all means the Opposition must put the government in the dock, but through debate. The Prime Minister is ready to intervene, make a statement, answer questions… what’s the problem in letting him do that?
