Side effects of SC’s coal block verdict: 6 issues the govt will have to solve quickly

coal

Vivek Kaul

In a landmark decision yesterday, the Supreme Court cancelled majority of the 218 coal blocks that were handed out free by the various governments since 1993 for captive mining.
The Coal Mines (Nationalisation) Act 1973 was amended in June 1993, allowing companies which were in the business of producing power and iron and steel, to own coal mines for their captive use. Hence, the coal that these companies produced in these mines was to be used to feed into the production of power, iron and steel etc.
This amendment was used to allot coal blocks for free to private and public sector companies to the condition that the coal produced was used for captive mining. The Supreme Court judged the process of allocation of these coal block to be suffering “from the vice of arbitrariness”. Hence, it cancelled a majority of the allocations.
But these cancellations will have several repercussions in the days and months to come. I discuss these repercussions here:

1) Currently 40 out of the 218 coal blocks that were allocated produce coal. The Supreme Court has cancelled all these allocations except one mine belonging to SAIL and two mines which feed coal into Sasan Power, which is an ultra mega power project. Data from the ministry of coal suggests that these mines are likely to produce around 52.9 million tonnes of coal during this financial year (April 1, 2014 to March 31, 2015).
Of this, the mines that have not been cancelled are likely to produce around 2.07 million tonnes of coal. This means that the cancelled coal mines will produce around 50.83 million tonnes of coal during the course of this financial year. The Supreme Court in its judgement yesterday said “
we make it clear that the cancellation will take effect only after six months from today, which is with effect from 31st March, 2015.”
So what happens from April 1, 2015? As yesterday’s judgement points out “The Central Government is confident, as submitted by the learned Attorney General, that the CIL[Coal India Ltd can fill the void and take things forward.” Hence, Coal India is likely to operate these mines after the cancellation comes into effect.
This as I had explained
in a previous piece has its own set of challenges. Coal India is a for profit enterprise and hence, it needs to be figured out who will bear the cost of operation during the period Coal India runs these mines. Further, will it be allowed to keep the profits it makes during the period it operates the mines?
Also, the government will have to figure out how to transfer these mines. As Ashok Khuarana, director of the Association of Independent Power Producers told The Economic Times “It is not yet clear how the operational mines would be transferred…If Coal India is taking over the mines, they ought to take over the liabilities too otherwise it would jeopardise the lenders.”
As mentioned earlier these mines are captive mines which supply to other units primarily producing coal and power. Hence, during the period Coal India takes over these mines it will have to make arrangements for transporting coal from the mine to the unit where it will be used. These arrangements need to be figured out.

Further, Coal India will have to transfer its own employees to run these mines. Again, a lot of manpower in coal-mines is statutory and cannot be just transferred overnight, until a replacement is found. Given this, it is important that the Coal Ministry and Coal India work in tandem over the next six months to have an actionable plan in place to take over the mines and continue producing coal.
2) It is very important that production in these coal mines is not stopped at any point of time. As pointed out earlier these mines are expected to produce around 50.83 million tonnes during the course of this financial year. This is around 8.6% of the total coal expected to be produced in India during this financial year. It is not an insignificant number by any stretch of imagination.
If Coal India doesn’t get around to producing coal in these mines starting from April 1, 2015, the power, iron and steel, cement and aluminium plants that these coal mines feed into, will have to import coal. There are several problems in importing coal. First and foremost imported coal is costlier. A research report brought out by Kotak Institutional Equities suggests that it costs Rs 600-800 per tonne to produce captive coal. In comparison, the e-auction price of coal sold by Coal India is Rs 2,200 per tonne. And it costs Rs 3,500 per tonne to import coal. Hence, imported coal is four to five times more expensive than captive coal.
Also, it is most likely that companies which have operational coal mines which feed into their power and iron and steel plants, will have to import coal. They may not be able to buy it from Coal India because Coal India already has prior commitments in place and may not be able to fulfil their coal needs.
As Crisil Research points out in a report titled
De-allocation of operating coal mines to severely impact metal players “Players who have operational coal blocks will witness a sharp decline in profitability post 2014-15, as they would have to substitute captive coal with imported coal which is about four times more expensive (as Coal India may not supply domestic coal to these players given its FSA[Fuel Supply Agreement] commitments to the power sector).”
Further, these companies will also have to pay a fine of Rs 295 per tonne for all the coal that they have produced till date and will continue to produce until March 31, 2015.
As I had explained in a piece yesterday, the cost of this fine will come to a little over Rs 10,000 crore.
3) Also, importing coal in a huge quantity will not be easy.
Our ports will have a tough time handling this additional quantity of coal that will have to be imported. Over and above that, the Indian Railways is not exactly geared to be able to transport this “extra” coal from the ports to different parts of the country where it is required. The added infrastructure that will be required to handle the additional imports cannot be created overnight. Further, sourcing more than 50 million tonnes of coal from the international market will not be easy, and will push up the international price of coal. India imported nearly 171 million tonnes of coal in 2013-2014 (April 1, 2013 to March 31, 2014). This went up by around 18% in comparison to 2012-2013 (April 1, 2012 to March 31,2013).
4) Imported coal will also mean that the cost of production of power will go up for companies which had been using captive coal supply. Hence, it is important that Coal India takes over these mines smoothly and continues producing coal.
A recent report in the Business Standard points out that the coal being produced in the mines already in operation was being used to produce “26,000 Mw of power output and 12 million tonnes of steel.”
5) Banks will also come under pressure because of the allocation of coal blocks being cancelled. A straight forward reason is that companies have spent money in getting these mines up and running. Now with the mines being taken away it is bound to put pressure on banks, as companies may not be able to continue servicing these loans. A report published by Enam Securities estimates that in total,n banks have loaned out about Rs 37,000 crore to the mining sector. Coal mines form around half of this lending. This amounts to around 0.6% of the total loans given by banks. Prima facie this does not sound like a big number but things could turn out to be much worse. “While this figure on [coal] mines seems low, the impact could be much greater, as it will impact power plants dependent on these mines,” Enam Securities pointed out.

A report in the Business Standard points out that “According to brokerage firm Anand Rathi Financial Services, the Supreme Court order will hit Andhra Bank the hardest, as the power sector accounts for 13.4 per cent of its total industry loan book.” This is followed by UCO Bank which has an exposure of 13.1 per cent of its total industry loan bank.
6) The government is likely to auction the coal blocks after it takes them over starting April 1, 2015. Interestingly, analysts are expecting that companies which have lost coal mines will bid aggressively in this auctions. As Crisil Research points out “
We expect players whose blocks are de-allocated to bid aggressively to retain their blocks, given the operational advantages such as proximity to end-use plants, quality of coal and consequent equipment configuration. Moreover, competition from other players operating in the vicinity of these blocks will also be very high as these are operational mines and the cost of imported coal is also higher.”
This will mean a windfall for the government if the auctions are designed well.
To conclude, there will be a lot of repercussions from yesterday’s decision on coalgate by the Supreme Court. The government will have to move fast in order to limit damage.
The article appeared originally on www.Firstbiz.com on Sep 26, 2014.
(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

Why protest? With Rs 52,000 cr cash, Coal India has already been privatised

coal

Vivek Kaul

The trade unions which represent the workers of Coal India Ltd, which produces most of the coal mined in India, are against the government’s recent decision to sell 10% stake in the company. They have even threatened to go on strike. This is primarily because they are against even a partial privatisation of what is still largely a government owned company.
The surprising thing though is that the back-door privatisation of Coal India has more or less already happened. Allow me to elaborate.
As on March 31, 2014, the company had a cash and bank balance of Rs 52,390 crore. This despite having paid the government a dividend of Rs 18,317.5 crore during the course of the year.
The question is how has the company been able to generate so much cash over the years? For this one has to look at some of the subsidiaries of Coal India. Take the case of Mahanadi Coalfield, the company earned a total revenue of Rs 12,033 crore during 2013-2014. On this it made an operating profit of Rs 5429.08 crore. This means an operating margin of a whopping 45.1%. Interestingly, the company had an operating margin of 51.3% in 2012-2013. This kind of margin is unheard of in government owned companies.
The company employs a little over 22,000 employees and produced 110.4 million tonnes of coal, which worked out to around 23.9% of the total coal produced by Coal India during the year.
Let’s take the case of another subsidiary, the Northern Coalfields Ltd. The company earned a total revenue of Rs 9303.88 crore. It earned an operating profit of Rs 3731.85 crore. This means an operating margin of 40.1%. This is a tad low in comparison to the operating margin of 54.2% that the company had earned in 2012-2013. The company produces around 14.8% of the total coal produced by Coal India and employees a little over 16,500 people.
The numbers clearly suggest that these two subsidiaries are fairly efficiently run. What is the secret behind that? In case of Mahanadi Coalfields a substantial amount of coal mining is outsourced to contractors. This helps the company mine coal at a very low cost as it helps keep employee costs low.
The coal mines of Northern Coalfields are highly mechanized. This along with outsourcing helps the company keep costs low and hence, generate a high operating margin. The profit generated by these two companies over the years has helped Coal India to push up its cash and bank balance to greater than Rs 50,000 crore. Interestingly, as on March 31, 2013, the cash and bank balance of the company had stood at Rs 62,236 crore. This fell after the company was forced to give a dividend of Rs 18,317.5 crore to the government.
It is interesting to compare the performance of Mahanadi Coalfields and Northern Coalfields with some of the older subsidiaries of Coal India like the Eastern Coalfields and Bharat Coking Coal, which operate largely in West Bengal and Jharkhand.
Eastern Coalfields employees more than 70,000 people, the highest among all the Coal India subsidiaries. It produces just 36.1 million tonnes or around 7.8% of the total coal produced by Coal India. Along similar lines, Bharat Coking Coal employees around 58,000 people and produces just 32.6 million tonnes or a little over 7% of the total coal produced by Coal India.
Employee cost forms a huge cost for both these companies and hence, the operating margins are a lower at 18% and 30.8%. One reason for the high employee cost is the fact that a lot of the mines operated by these companies are underground mines, where the technology used to mine coal is still very labour intensive.
Also, the trade unions are stronger in this party of the country and that is another reason why these companies employ so many people to produce a minuscule amount of coal in comparison to other subsidiaries of Coal India. It is interesting nonetheless to observe that the contractual expenses of Eastern Coalfields have risen by 117% since 2009-2010.
The broad level data for Coal India also shows a similar trend. The contractual expenses for the company stood at Rs 7812.71 crore for 2013-2014, a rise of around 48% from 2010-2011. What this clearly suggests is that Coal India is contracting out more and more of its work and that has helped the company. The annual report of the company points out that the contractual expenses have increased mainly due increased volume of contractual operations. This is one of the major reasons which has helped the company push its net profit from Rs 4696.1 crore in 2010-11 to Rs 15,008.5 crore in 2013-2014. And this in turn has translated into a huge hoard of cash.
To conclude, the latest annual report of the company does not give out any number to the proportion of the total coal, mined by the contractors. Nevertheless, people who follow the sector closely suggest that a substantial part of the coal being mined by Coal India is now through outsourcing. What this clearly shows is that the company has been privatised through the back-door, despite the resistance of the labour unions.
The article was originally published on Sep 22, 2014 on www.Firstbiz.com
(Vivek Kaul is the author of
Easy Money trilogy. He tweets @kaul_vivek)

Why protest? With Rs 52,000 cr cash, Coal India has already been privatised

coal

Vivek Kaul

The trade unions which represent the workers of Coal India Ltd, which produces most of the coal mined in India, are against the government’s recent decision to sell 10% stake in the company. They have even threatened to go on strike. This is primarily because they are against even a partial privatisation of what is still largely a government owned company.
The surprising thing though is that the back-door privatisation of Coal India has more or less already happened. Allow me to elaborate.
As on March 31, 2014, the company had a cash and bank balance of Rs 52,390 crore. This despite having paid the government a dividend of Rs 18,317.5 crore during the course of the year.
The question is how has the company been able to generate so much cash over the years? For this one has to look at some of the subsidiaries of Coal India. Take the case of Mahanadi Coalfield, the company earned a total revenue of Rs 12,033 crore during 2013-2014. On this it made an operating profit of Rs 5429.08 crore. This means an operating margin of a whopping 45.1%. Interestingly, the company had an operating margin of 51.3% in 2012-2013. This kind of margin is unheard of in government owned companies.
The company employs a little over 22,000 employees and produced 110.4 million tonnes of coal, which worked out to around 23.9% of the total coal produced by Coal India during the year.
Let’s take the case of another subsidiary, the Northern Coalfields Ltd. The company earned a total revenue of Rs 9303.88 crore. It earned an operating profit of Rs 3731.85 crore. This means an operating margin of 40.1%. This is a tad low in comparison to the operating margin of 54.2% that the company had earned in 2012-2013. The company produces around 14.8% of the total coal produced by Coal India and employees a little over 16,500 people.
The numbers clearly suggest that these two subsidiaries are fairly efficiently run. What is the secret behind that? In case of Mahanadi Coalfields a substantial amount of coal mining is outsourced to contractors. This helps the company mine coal at a very low cost as it helps keep employee costs low.
The coal mines of Northern Coalfields are highly mechanized. This along with outsourcing helps the company keep costs low and hence, generate a high operating margin. The profit generated by these two companies over the years has helped Coal India to push up its cash and bank balance to greater than Rs 50,000 crore. Interestingly, as on March 31, 2013, the cash and bank balance of the company had stood at Rs 62,236 crore. This fell after the company was forced to give a dividend of Rs 18,317.5 crore to the government.
It is interesting to compare the performance of Mahanadi Coalfields and Northern Coalfields with some of the older subsidiaries of Coal India like the Eastern Coalfields and Bharat Coking Coal, which operate largely in West Bengal and Jharkhand.
Eastern Coalfields employees more than 70,000 people, the highest among all the Coal India subsidiaries. It produces just 36.1 million tonnes or around 7.8% of the total coal produced by Coal India. Along similar lines, Bharat Coking Coal employees around 58,000 people and produces just 32.6 million tonnes or a little over 7% of the total coal produced by Coal India.
Employee cost forms a huge cost for both these companies and hence, the operating margins are a lower at 18% and 30.8%. One reason for the high employee cost is the fact that a lot of the mines operated by these companies are underground mines, where the technology used to mine coal is still very labour intensive.
Also, the trade unions are stronger in this party of the country and that is another reason why these companies employ so many people to produce a minuscule amount of coal in comparison to other subsidiaries of Coal India. It is interesting nonetheless to observe that the contractual expenses of Eastern Coalfields have risen by 117% since 2009-2010.
The broad level data for Coal India also shows a similar trend. The contractual expenses for the company stood at Rs 7812.71 crore for 2013-2014, a rise of around 48% from 2010-2011. What this clearly suggests is that Coal India is contracting out more and more of its work and that has helped the company. The annual report of the company points out that the contractual expenses have increased mainly due increased volume of contractual operations. This is one of the major reasons which has helped the company push its net profit from Rs 4696.1 crore in 2010-11 to Rs 15,008.5 crore in 2013-2014. And this in turn has translated into a huge hoard of cash.
To conclude, the latest annual report of the company does not give out any number to the proportion of the total coal, mined by the contractors. Nevertheless, people who follow the sector closely suggest that a substantial part of the coal being mined by Coal India is now through outsourcing. What this clearly shows is that the company has been privatised through the back-door, despite the resistance of the labour unions.
The article was originally published on Sep 22, 2014 on www.Firstbiz.com
(Vivek Kaul is the author of
Easy Money trilogy. He tweets @kaul_vivek)

Fed may be reducing easy money, but here’s why Sensex will keep soaring

yellen_janet_040512_8x10Vivek Kaul

In theory there is no difference between theory and practice. In practice there is.

Yogi Berra

A question I am often asked is why are the stock markets around the world still rallying despite the Federal Reserve of United States going slow on printing money. In a statement released yesterday the Fed decided to cut down further on money printing.
It will now print $15 billion per month instead of the earlier $25 billion. This was the seventh consecutive cut of $10 billion. Since December 2012, the Federal Reserve had been printing $85 billion per month. This money was pumped into the financial system by buying mortgage backed securities and government bonds. The idea was that by increasing the amount of money in the financial system, long term interest rates could be driven lower. The hope was that at lower interest rates, people would borrow and spend more.
From January 2014, the Federal Reserve decided to buy bonds worth $75 billion a month, instead of the earlier $85 billion. This meant that the Fed would be printing $75 billion a month instead of the earlier $85 billion. This cut in money printing came to be referred to as “tapering”, which means getting progressively smaller. Since then the amount of money being printed by the Federal Reserve has been tapered to $15 billion per month. At this pace the Federal Reserve should be done at dusted with its money printing by next month i.e. October 2014.
A lot of this printed money instead of being lent out to consumers has found its way around into stock markets and other financial markets around the world. The Dow Jones Industrial Average, America’s premier stock market index, has rallied more than 30% since October, 2012. This when the American economy hasn’t been in the best of shape.
The FTSE 100, the premier stock market index in the United Kindgom, has given a return of 15% during the same period. The Nikkei 225, the premier stock market index of Japan has rallied by 53% during the same period. Closer to home, the BSE Sensex has rallied by around 43% during the same period.
Stock markets around the world have given fabulous returns, despite the global economy being down in the dumps. The era of easy money unleashed by the Federal Reserve has obviously helped.
Nevertheless, the question is with the Fed clearly signalling that the easy money era is now coming to an end, why are stock markets still holding strong? One reason is the fact that even though the Fed might be winding down its money market operations, other central banks are still continuing with it.
The Bank of Japan, the Japanese central bank is printing around ¥5-trillion per month and is expected to do so till March 2015. The European Central Bank is also preparing to print €500-billion to €1-trillion over the next few years. What this means is that interest rates in large parts of the Western world will continue to remain low. Hence, big institutional investors can borrow from these financial markets and invest the money in stock markets around the world.
The second and more important reason is that the Federal Reserve does not plan to shrink its balance sheet any time soon. Before the financial crisis started in September 2008, the size of the Federal Reserve balance sheet stood at $925.7 billion. Since then it has ballooned and as on August 27, 2014, it stood at $4.42 trillion.
The size of the Fed balance sheet has exploded by close to 378% over the last six years. This has happened primarily because the Fed has printed money and pumped it into the financial system by buying bonds, in the hope of keeping interest rates low and getting people to borrow and spend.
Janet Yellen, the current Chairperson of the Federal Reserve made it very clear yesterday that the Fed was in no hurry to withdraw this money from the financial system. It could take to the “end of the decade” to shrink the Fed’s huge balance sheet
“to the lowest levels consistent with the efficient and effective implementation of policy.”
What this essentially means is that the money that the Fed has printed and pumped into the financial system by buying bonds, will not be suddenly withdrawn from the financial system. When a bond matures, the institution which has issued the bond, repays the money invested to the institution that has invested in it.
If the investor happens to be the Federal Reserve, the maturing proceeds are paid to it. This leads to the amount of money in the financial system going down, and could lead to interest rates going up, as money becomes dearer.
This is something that the Fed does not want, in order to ensure that individuals continue borrow and spend money, and this, in turn, leads to economic growth. Hence, the Fed will use the money that comes back to on maturity, to buy more bonds and in that way ensure that total amount of money floating in the financial system does not go down.
This means that long term interest rates will continue to remain low. Hence, investors can continue to borrow money at low interest rates and invest that money in different parts of the world.
Yellen also clarified that short-term interest rates are also not going to go up any time soon. As she said “economic conditions may for some time warrant keeping the target federal funds rate below levels the committee views as normal in the longer run.”
The federal funds rate is the interest rate that banks charge each other to borrow funds overnight, in order to maintain their reserve requirement at the Federal Reserve. This interest rate acts as a benchmark for short-term loans.
Given these reasons, the stock markets around the world will continue to rally, at least in the near term, as the era of easy money will continue. These rallies will happen, despite global growth being down in the dumps and the fact that the global economy is still to recover from the financial crisis that started just about six years and three days back, when the investment bank Lehman Brothers went bust on September 15, 2008.
To conclude, Ben Hunt who writes the Epsilon Theory newsletter put it best in a recent newsletter dated September 8, 2014, and titled
The Ministry of Markets: “No one doubts the omnipotence of central banks. No one doubts that market outcomes are fully determined by central bank policy. No one doubts that central banks are large and in charge. No one doubts that central banks can and will inflate financial asset prices. And everyone hates it.”
The article appeared originally on www.FirstBiz.com on Sep 18, 2014

 (Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

2G scam: Time to stop portraying Vinod Rai as the villain when politicians are to blame

Inclusive Governance: Enabling Capability, Disabling Resistance

Vivek Kaul

In a blog on The Economic Times website TK Arun writes that “Former CAG[Comptroller and Auditor General] Vinod Rai does a far better job of drumming up publicity for his book than he did of auditing the government’s accounts.”
This is a very serious charge and needs to explored in detail. Arun further writes that “The New Telecom Policy identified, in 1999, the goal as maximizing the spread of telecom, so as to accelerate the pace of social and economic development.” True.
But there are certain details that one needs to look into.
The National Telecom Policy of 1999 had set a teledensity target of providing 15 telephone connections per 100 of population. The teledensity in 2001 had stood at 3.58. In September 2007, a teledensity of 18.22 had been reached.
It was only in September 2007 that the shenanigans of the then communications minister A Raja started. In a press release put out by o
n September 25, 2007, applications were invited for telecom licenses. The last date was set to October 1, 2007, a week later. In total 575 applications for 22 service areas were received by the communications ministry.
There wasn’t enough telecom spectrum available to allocate to so many applicants. So what was the way out? In fact, the tenth plan document clearly mentions this, when it comes to spectrum allocation: “pricing needs to be based on relative demand and supply over space and time in a dynamic manner, [with] opportunity cost to reflect relative scarcity of the resource in a given situation.”
So yes, the goal of the National Telecom Policy of 1999 was to maximize the spread of telecom, but there were other factors to consider as well. Interestingly, Manmohan Singh wrote a letter to A Raja on November 2, 2007. In this letter Singh said “In order that spectrum use efficiently gets directly linked with the correct pricing of spectrum, consider (i) introduction of a transparent methodology of auction, wherever legally and technically feasible, and (ii) revision of entry fee, which is currently benchmarked on old spectrum auction figures.”
The telecom licenses were to be given away by following the first-come-first-served process, with an entry fee being charged. An entry fee of Rs 1,651 crore, set in 2001 was being charged. The Indian telecom sector had totally changed in the meanwhile. As mentioned earlier the teledensity in 2007 was at 18.22 per 100 of population, having exploded from 2001 onward when it was at 3.58.
Taking these factors into account, the telecom regulator
TRAI had also pointed out in August 2007 that “In today’s dynamism and unprecedented growth of telecom sector, the entry fee determined in 2001 is also not the realistic price of obtaining a license. Perhaps it needs to be reassessed by a market mechanism.”
As Rai points out in his book
Not Just An Accountant—The Diary of the Nation’s Conscience Keeper: “It is obviously no one’s case that we need to sit back once a target is achieved, but surely revenue mobilization, in lieu of a scarce national resource being made available for private commercial exploitation where tariff is not fixed, cannot be totally overlooked.” If nothing else, at least the rate of inflation had to be taken into account while charging an entry fee.
The National Telecom Policy of 1999 aimed at maximizing teledensity, nevertheless there were certain ifs and buts built into it. As Manmohan Singh pointed out to Raja in the letter cited earlier: “The DoT [department of telecom] has received a large number of applications for new licenses in various telecom circles. Since spectrum is very limited, even in the next several years all these new licensees may never be able to get spectrum. The Telecom Policy that had been approved by the Union Cabinet in 1999 specifically stated that new licenses would be given subject to availability of spectrum.”
So, it wasn’t just about maximizing the spread of telecom, as Arun wants us to believe. Other practical issues needed to be considered as well.
Arun further goes on to write “
As for Rai’s criticism of Manmohan Singh, it would be fair to ask: has he estimated the cost that would have been inflicted on the nation by the political turmoil and uncertainty caused by the then-PM refusing to yield to coalition compulsions?”
This argument doesn’t make any sense to me. It has been well established by now that Manmohan Singh was aware of what Raja was up to, but chose not to do anything about it, after writing a couple of letters to Raja. Singh responded on November 21, 2007, by sending what former CAG Rai calls a “template response”. In this letter Singh acknowledged that he had received Raja’s recent letter on the recent developments in the telecom sector. Raja wrote to the prime minister again on December 26, 2007. Singh again responded with the same templated response on January 3,2008.
Raja had dismissed Singh’s suggestion of considering an auction. And Singh had not done anything about it. In fact, he went on to distance himself from the decisions being made by Raja. Joint secretary Vini Mahajan recorded that the prime minister “does not want a formal communication and wants PMO to be at arm’s length.” As Rai asks “How can the office of the prime minister distance itself from such major decisions? Arm’s length from the action of his own government?”
The straightforward answer here that Singh was just trying to run a coalition government. But as
Rai put it in a recent interview to Outlook “Does good politics mean just staying in power? Integrity is not just financial; it is intellectual integrity; it is professional integrity. You have an oath of allegiance to the constitution and that is important.”
Hence, what is clear here is that Singh was more interested in continuing to be PM rather than making what he thought was the right decision.
Arun further writes ” In estimating a notional loss to the exchequer of Rs 1,76,000 crore from not holding auctions to allocate 2G spectrum, Rai erred on multiple counts.”
The CAG report on the 2G scam had four computations of the loss to the country. These numbers were Rs 67,364 crore, Rs 1,76,645 crore, Rs 69,626 crore and Rs 57,666 crore. The CAG did not put out only one estimate. The media of which Arun is a part of picked up the highest number and splashed it all over. That was clearly not Rai’s fault.
On February 2, 2012, the Supreme Court cancelled all the licenses that had been issued by A Raja. These licenses had to be auctioned again. The two rounds of auctions that happened netted the government Rs 78,505 crore. This number is more than the three out of the four options of losses that the CAG calculated.
As T N Ninan wrote in the Business Standard “As it happens, the CAG has more than one figure of revenue loss. Several commentators have also come up with numbers, which run into tens of thousands of crores. And because of the aberrant manner in which Mr Raja handed out these substantial gifts, it became the largest scam in our history.”
Arun further writes “[Rai] failed to take into account the additional revenues the government earned from allocating spectrum in the manner in which it did, instead of holding auctions.”
This is a basically using the end to justify the means and in the process advocating crony capitalism as well. When the press release inviting applications for telecom licenses was put out, the potential applicants were asked to apply between September 25, 2007 and October 1,2007. In a letter written to Manmohan Singh on November 2, 2007, Raja had informed him that he had decided to advance the cut off date for licenses to September 25,2007, the date on which the press release was issued for the allocation of licenses, instead of October 1, 2007.
Raja did not offer any reasons for the same. Singh did not ask. What is interesting nonetheless is that
thirteen applicants seemed to have known of this change in date, in advance. How else do you explain the fact that certain applicants appeared with demand drafts amounting to thousands of crore, which had been issued even before the press release inviting applications for telecom licenses was put out on September 25, 2007.
Given these reasons, I guess its time that certain sections of the media stop portraying Rai as the villain of the piece. The real villains were the politicians starting with Manmohan Singh who let A Raja to carry out the 2G scam. As Rai writes “The MPs tore into the CAG’s findings. Congress MPs walked up to me…and said ‘We have to ensure that the prime minister’s name does not get dragged into this,’ adding, ‘What you people presented appears so reasonable, but what do we do?’ Such are the ways of parliamentary democracy practised by some.”
To conclude, as far as Rai drumming up publicity for his book is concerned, what is wrong with that? It’s a book that needs to be read by every thinking Indian who wants to “really” understand how the politicians of UPA took India for a ride, over a period of ten years.
The article originally appeared on www.FirstBiz.com on Sep 19,2014
(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)