Vivek Kaul
“Hum to doobe hain sanam, par tumko bhi le doobenge,” was a line often used in the Hindi movies of the sixties, seventies and eighties. This line now applies to the Congress party as it tries to divert the attention from its involvement in the coal-gate scam.
The Central Bureau of Investigation (CBI) will now widen the scope of its inquiry into the coal-gate scam. The inquiry will now cover allocation of all coal blocks given away for free to private companies including state government entities since the policy was first initiated in 1993.
“The ongoing CBI inquiry covers 67 blocks allotted to private parties since 2004 when the ruling United Progressive Alliance (UPA) came to power,” reports the Business Standard. The CBI will now probe all the allocations made to private companies going back to 1993.
This means that the inquiry will now also look at allocations made to private companies before the Congress led United Progressive Alliance(UPA) came to power. “The probe will now cover the blocks given during the six-year tenure of the BJP-led NDA government, from 1998 to 2004, besides those allotted by the Congress government led by P.V. Narasimha Rao after 1993 and the United Front government from 1996 to 1998. Till now, the CBI was investigating private companies that got blocks between 2004 and 2009,” reports The Hindu.
This widening of the inquiry came on the basis of a reference made by the Central Vigilance Commission (CVC). The reference made by the CVC was in response to a letter written by Coal Minister Sriprakash Jaiswal drawing the attention of the commission to the concerns of seven MPs of the United Progressive Alliance (UPA). These MPs included Sandip Dikshit, Harish Chaudhary, Ravneet Singh and Raghuveer Singh Meena. In a letter written to the Coal Minister on September 5, 2012, the MPs said: “It appears that there were many cases of malpractice while allocating blocks between 1993 and 2004. All blocks allotted since 1993 should be investigated by the CBI, specially looking at systems through which state governments selected private companies whose names they forwarded to the government.”
While any investigation has to expose those who are guilty, it still does not change the fact that coal-gate has largely been a Congress scam. This is clearly pointed out by the numbers in the Provisional Coal Statistics 2011-12, put out by theCoal Controller’s Organisation, Ministry of Coal.
A total 195 coal blocks have been allocated between 1993 and 2011. Of these only 39 were allocated prior to 2004. Hence, only 80% of the coal blocks were allocated in the period prior to 2004. As we know the Congress led UPA has been in power since May 2004.
Things get even more interesting when we measure in terms of the geological reserves these coal blocks (i.e. the amount of coal) have. In fact, the total geological reserves of the coal blocks given away for free between 1993 and 2011 stands at 44802.9 million tonnes.
The coal blocksallocated between 2004 and 2011, the period during which the Congress led UPA has been in power, have geological reserves amounting to a total of 41235.9 million tonnes. This means that 92% of the total geological reserves were given for free during the period of 2004 and 2011. As mentioned earlier the Congress led UPA has been in power since May 2004.
To this we also need to add the coal blocks given away for free during the period 1993 and 1996 when the Congress government led by PV Narsimha Rao was in power. During this period nine blocks with geological reserves of 917.7million tonnes was given away for free. Hence, the Congress party was directly involved in giving away 42153.6 million tonnes or 94% of the total reserves for free.
These numbers include both private and government owned companies. The scope of the investigation as we know is limited to coal blocks given away for free to private companies. I couldn’t locate any data that gives the exact breakdown of the geological reserves of coal blocks allocated to private companies between 1993 and 2003, and then between 2004 and 2011. But the report put out by the Comptroller and Auditor General (CAG) of India does give us some information on this front.
The total geological reserves of coal blocks given away to private companies (excluding ultra mega power projects) for free between 1993 and 2009 amounted to 17397.22 million tonnes. Of this, a total of 14060.34 million tonnes was allocated between 2006 and 2009, when the free giveaway of coal blocks was at its peak. Also, the Prime Minister Manmohan Singh was also the Coal Minister for a large part of this period.
So around 81% of the the total geological reserves given to private companies was given between 2006 and 2009. We don’t have an exact breakdown for the earlier years. If we did the number would have been significantly higher.
What these numbers clearly tell us is that coal-gate is a Congress scam. There might have been corruption during periods of non-Congress rule and that cannot be denied. But as we saw chances are that as much as 94% of the total geological reserves were given away for free during periods of Congress rule.
Between 2004-2005 and 2008-2009 there was a rally on in global commodity prices as China expanded at breakneck speed gobbling up commodities from all over the world. Hence, the price of coal shot through the roof. The international price of coal was a little over $20 per metric tonne in mid 2003. It shot up to around $40 per metric tonne in mid 2005 and kept rising after that. Prices shot up to around $190 per tonne internationally in mid 2008. As the price of coal shot up, so did the number of coal blocks given away for free by the Congress led UPA government.
Given this, asking the CBI to investigate everything from 1993 onwards is just a step towards diluting the scope of the investigation and hoping to gather some political ammunition against the opposition parties .As the Business Standard reports “If the inquiry raises questions over allocations during the National Democratic Alliance (NDA) regime, it will provide the government with political ammunition to counter criticism by the Opposition.”
(The article originally appeared at www.firstpost.com on September 25,2012. http://www.firstpost.com/business/coalgate-is-94-percent-congress-scam-6-percent-others-467619.html)
(Vivek Kaul is a writer. He can be reached at [email protected])
Coalgate
Why giving away coal blocks for free was never a solution
Vivek Kaul
In the year 2011-2012 (i.e. the period between April 1, 2011 and March 31, 2012) India produced around 540million tonnes of coal. This was 1.36% more than the amount produced in 2010-2011 (i.e. the period between April 1, 2010 and March 31,2011).
Of the 540million tonnes Coal India produced around 436million tonnes or a little over 80% of the total coal produced in India. The remaining was produced by Singareni Collieries Company and a host of other small companies.
This production wasn’t enough to meet the demand for coal in India. Hence, India also imported 99 million tonnes of coal during the course of the year primarily from countries like Australia, Indonesia and South Africa.
The amount of coal, India has been importing has been growing significantly over the years (as can be seen from the table below). What also comes out clearly is that the amount paid for importing coal grew at a much faster rate than the amount of coal imported between 2003-2004 and 2008-2009. This was the period when the international prices of coal were rallying and touched $190 per tonne in mid 2008.
Coal Imports In Million tonnes In Rupees crore
1999-2000 19.7 3548
2000-2001 20.9 4053
2001-2002 20.5 4536
2002-2003 23.3 5028
2003-2004 21.7 5009
2004-2005 29 10266
2005-2006 38.6 14910
2006-2007 43.1 16689
2007-2008 49.8 20738
2008-2009 59 41341
2009-2010 73.3 39180
2010-2011 68.9 41550
2011-2012 98.9 45723*
*from April-Oct 2011
Source: Provisional Coal Statistics 2011-2012, Coal Control Organisation, Ministry of Coal
Why this was not par for the course
All this would have been par for the course if India did not have enough coal reserves. Like is the case with oil. We don’t have enough known reserves of oil and hence we don’t produce enough oil to meet the demand. So we import oil.
But as numbers for the Geological Survey of India indicate as on April 1, 2012, India had 293.5billion tonnes of coal reserves. These reserves are referred to as geological reserves and are for valid for a depth between 0.9 metres and 1200 metres.
Not all of these reserves can be mined. Open cast mining of coal typically goes to a depth of around 250 metres below the ground level whereas underground mining goes to a depth of around 600-700 metres.
The amount of coal that can be extracted is referred to as extractable reserves. PC Parekh, a retired IAS officer in a presentation puts the extractable reserves at around 60billion tonnes. (You can access the presentation here). A few other experts this writer spoke to said that this number could be significantly higher.
But that’s beside the point. What this clearly tells us is that India has enough coal to mine unlike oil. Given this, India should not be importing the nearly 100million tonnes of coal that it did during the last financial year.
So then why is India not able to mine enough coal? The simple answer is that Coal India which is the biggest producer of coal in the country is not able to produce enough coal. One look at the following table clearly proves that.
Year Production (in million tonnes)
2011-2012 436
2010-2011 431
2009-2010 415
2008-2009 400
2007-2008 372
2005-2006 348
2004-2005 371
Average 396
Source: Coal India
Why coal blocks were given away for free
Between 2004-2005 and 2011-2012, the total coal production has increased by 17.5% or at a miniscule rate of 2.3% per year. The slow increase in the production of coal did not help given that India has been second the fastest growing economy in the world for a while now. Hence, the energy needs of the country have been growing as well. This meant greater demand for coal. A study published in 2011 shows that coal is used to meet 40% of India’s energy needs against the global average of 27%.
What did not help was the fact that between 2004-2005 and 2008-2009 there was a rally on in global commodity prices as China expanded at breakneck speech gobbling up commodities from all over the world. Hence, the price of coal shot through the roof. The international price of coal was a little over $20 per metric tonne in mid 2003. It shot up to around $40 per metric tonne in mid 2005 and kept rising after that. Prices shot up to around $190 per tonne internationally in mid 2008.
Given these reasons the government felt that there was a need to look beyond Coal India. In fact, the inability of Coal India to produce enough coal was the main reason why The Coal Mines (Nationalisation) Act 1973 was amended with effect from June 9,1973, to allow the government give away coal blocks for free.
The Economic Survey for 1994-95 points out the reason behind the decision. “In order to encourage private sector investment in the coal sector, the Coal Mines (Nationalisation) Act, 1973 was amended with effect from June 9, 1993 for operation of captive coal mines by companies engaged in the production of iron and steel, power generation and washing of coal in the private sector,” the survey points out.
The total coal production in the country in 1993-94 stood at 246.04million tonnes having grown by 3.3% from 1992-93. The government understood that the production was not going to increase anytime soon because the newer projects were having time delays and cost overruns. As the 1994-95 economic survey put it “As on December 31,1994, out of 71 projects under implementation in the coal sector, 22 projects are bedeviled by time and cost over-runs. On an average, the time overrun per project is about 38months.There is urgent need to improve project implementation in the coal sector”.
Even though the decision to give away coal blocks for free came into effect in 1993, nothing much happened till 2004. Between 2005 and 2009, the government of India gave away 149 coal blocks for free. This was also the time when the global rally in coal prices was on and the Indian demand for coal was also on its way up. The conclusion that one can draw from this is that before 2004 it was cheap for a company to import coal because international coal prices were low. But after that things changed and it made more sense for companies to have direct access to coal.
But giving away the coal blocks for free did not solve any problem. As per the report prepared the Comptroller and Auditor General of India, as on March 31, 2011, eighty six of these blocks were supposed to produce around 73million tonnes of coal. Only 28 blocks have started production and their total production has been around 34.6million tonnes, as on March 31,2011.
Why Coal India cannot increase production at a faster rate
In all this, the question that nobody seems to be asking is that why is Coal India not able to produce enough coal? It has probable reserves of around 18.9billion tonnes, but is still unable to expand production at a higher rate.
If I was a television journalist I would say that Coal India has been unable produce more simply because it is inefficient like most Indian public sector companies. But the truth is a lot more complicated than that. And it to a large extent explains why the government’s decision of giving away coal blocks for free hasn’t worked.
India’s coal reserves are largely concentrated in the middle of the country in the states of Jharkhand, West Bengal, Odisha, Madhya Pradesh, Chattisgarh, Maharashtra and Uttar Pradesh. There are some reserves in the North East as well, but they are at best miniscule. It does not help that the states that have the biggest coal reserves are also dealing with naxalite problem. Hence operating in these regions isn’t very easy.
A lot of the coal reserves are also in regions categorized as forest areas and getting clearances from the state governments isn’t always easy. What also has not helped is that the Ministry of Environment and Forests which gives the overall environment clearance isn’t known to be terribly efficient. As NC Jha told Times of India at the beginning of the year “Our 168 projects are pending environment and forest clearances at the Centre and State levels. Sixty-seven of these projects are greenfield and we are unable to make any investment in these. Remaining are ongoing expansion schemes, which too have been stalled.” Jha was the Chairman of Coal India at that point of time.
But these are small problems. The biggest problem facing Coal India is acquisition of land. The right to property is not a fundamental right in India. And over the years the government of India has acquired land forcibly from the citizens of this country at rock bottom prices. In the city of Ranchi, where this writer grew up, original landholders have still not been paid after their land was acquired to set up what was then one of the biggest public sector units in India.
Attempts to rehabilitate people whose land is acquired by the government, is rarely made. The homes built for this people are unlivable to say the least in a lot of cases. Hence, people resist to hand over their land, their only source of income.
Given this attitude of the government of India over the years the issue has become politicised. Hence, the state governments are not interested because by forcibly acquiring land they are likely to lose votes.
Due to these same reasons giving away coal blocks for free hasn’t worked and will not work. 193 out of the 195 coal blocks that government has given away for free are in the states of Jharkhand, West Bengal, Odisha, Madhya Pradesh, Chattisgarh and Maharashtra. All these states have a naxalite problem and that will effect the private and other government players as much as it has been impacting Coal India. The government’s environmental policy and the land acquisition policy continue to remain in a mess.
What also does not help is the fact that the expertise required to get a coal mine up and running is largely limited to Coal India. Mining coal isn’t exactly as easy as digging a tube-well.
In order to get a block up and running, companies need to prepare a mine plan, carry out the environmental impact study (EIS) of the area etc. The EIS essentially looks at what the current environment of the area is like, how mining coal will change that and what can be done to ensure that the current environment can be maintained. For Coal India this planning is done by Central Mine Planning and Design Institute (CMPDI), a 100% subsidiary. Such expertise is not easily available in the private sector.
To conclude
Coalgate is not a problem that emerged overnight. It is a problem created by the various Congress governments (given that the party has ruled the country for the most part since independence) over the years. This led to the Congress led UPA government giving away coal blocks for free to ensure that India produces more coal. But that is a problem that remains and will remain.
All data unless otherwise stated has been sourced from Provisonal Coal Statistics, 2011-2012, Coal Controller’s Organisation, Ministry of Coal.
(The article originally appeared on www.firstpost.com on September 11,2012. http://www.firstpost.com/business/why-giving-away-coal-blocks-for-free-was-never-a-solution-450915.html#disqus_thread)
(Vivek Kaul is a writer. He can be reached at [email protected])
The dirty business
Vivek Kaul
“Every action has an equal and opposite reaction,” states Newton’s Third Law of Motion. The law holds in political and economic space as well, the only difference being that sometimes the gap between the action and the reaction can be as long as two decades.
The Coal Mines (Nationalisation) Act 1973 was amended with effect from June 9,1973. The Economic Survey for 1994-95 points out the reason behind the decision. “In order to encourage private sector investment in the coal sector, the Coal Mines (Nationalisation) Act, 1973 was amended with effect from June 9, 1993 for operation of captive coal mines by companies engaged in the production of iron and steel, power generation and washing of coal in the private sector,” the survey points out.
The reason for the change was simple. The government owned Coal India Ltd wasn’t producing enough coal to meet the growing energy needs of the country. The total coal production in the country in 1993-94 stood at 246.04million tonnes having grown by 3.3% from the last financial year.
What also did not help was the fact that there were huge time and cost escalations on the newer projects to mine coal. As the 1994-95 economic survey put it “As on December 31,1994, out of 71 projects under implementation in the coal sector, 22 projects are bedeviled by time and cost over-runs. On an average, the time overrun per project is about 38months.There is urgent need to improve project implementation in the coal sector”.
This change made nearly two decades ago allowed the government to give away coal blocks free to both government owned as well as private sector companies. The repercussions of this move are being felt now with the Comptroller and Auditor General(CAG) of India coming out with a report and putting the losses of giving out coal mines for free at Rs 1,86,000 crore. It also has led to a political deadlock in the functioning of the Parliament.
So what happened in between 1993 and 2011?
Between 1993 and 2003, the government wasn’t in any hurry to give away mines free. In a period of over ten years, the government gave away around 41 blocks (17 to private sector companies and 24 to government owned companies) for free. Even 2004 was a slow year with only 5 blocks being given away for free.
But come 2005 and the government was suddenly in a hurry to give away blocks for free. Twenty four blocks were given away during the course of the year. This continued over the next few years. Between 2006 and 2009 a total number of 145 coal blocks were handed for free to private sector companies, government companies and ultra mega power projects. The total geological reserves of these coal blocks amounted to around 40.9billion tonnes. As the CAG report points out the total geological reserves of coal in India, as on April 1, 2011, were at around 285.9billion tonnes. Hence, 14.3% of the total coal reserves in the country were given away by the government for free. For most of this period between 2006 and 2009, the Prime Minister Manmohan Singh doubled up as the coal minister as well.
Why was there a sudden increase in giveaways post 2005?
Data from ministry of coal shows that the total production of coal in India in 2005-2006 stood at 437.3million tonnes. As pointed out earlier the production in 1993-1994 was 246.04million tonnes. Hence over a period of 12 years, the coal production had grown at the rate of 4.9% per year on an average. Of the 437.3million tonnes produced in 2005-2006, Coal India Ltd produced around 348million tonnes or around 80% of the total produce.
The trouble was that the economy was growing at a much faster rate than the rate of coal production. Hence the total coal demand could not be satisfied by the coal being produced by Coal India and other few government owned companies.
This meant coal had to be imported. The amount of coal imported doubled from 19.7 million tonnes in 1999-2000 to 38.6million tonnes in 2005-2006. In 1999-2000 these imports cost Rs 3,548 crore. In 2005-2006, the coal imports cost Rs 14,910 crore. Hence, even though the amount of coal that the country imported had doubled, the total amount paid for it had gone up by 4.2 times.
This was primarily because the price of coal started to shoot up from mid 2003 onwards. The price was a little over $20 per metric tonne of coal at that point of time. It shot up to around $40 per metric tonne in mid 2005 and kept rising after that. Prices shot up to around $190 per tonne internationally in mid 2008. As can be seen from the following table, the import of coal kept going up over the years, but the money paid for it went up at a much faster rate.
The conclusion that one can draw from this is that before 2004 it was cheap for a company to import coal because international coal prices were low. But after that things changed and it made more sense for companies to have direct access to coal.
Coal Imports In Million tonnes In Rupees crore
1999-2000 19.7 3548
2000-2001 20.9 4053
2001-2002 20.5 4536
2002-2003 23.3 5028
2003-2004 21.7 5009
2004-2005 29 10266
2005-2006 38.6 14910
2006-2007 43.1 16689
2007-2008 49.8 20738
2008-2009 59 41341
2009-2010 67.8 NA
Source: Provisional Coal Statistics 2009-2010, Coal Control Organisation, Ministry of Coal
Coal India has not been able to expand production fast enough to meet this growing need for coal in India. Between 2004 and March 31, 2012, the production of coal has increased by just 65million tonnes to 436million tonnes. This means an increase in production at the rate of 2.3% per year on an average, over the last seven years.
Year Production (in million tonnes)
2011-2012 436
2010-2011 431
2009-2010 415
2008-2009 400
2007-2008 372
2005-2006 348
2004-2005 371
Average 396
Source: Coal India Ltd
Hence there was a need to look beyond Coal India. This in a way explains why the government gave away 145 coal blocks free between 2006 and 2009. But all this was of not much use.
The government’s decision to give away coal blocks free in the hope of increasing coal production hasn’t gone anywhere. As per the CAG report, as on March 31, 2011, eighty six of these blocks were supposed to produce around 73million tonnes of coal. Only 28 blocks have started production and their total production has been around 34.6million tonnes, as on March 31,2011.
Why expanding coal production is very difficult?
The root of the decision to give away coal blocks for free has been the inability of Coal India to expand production at the rate which meets the growing coal demands of the country. There are several reasons for the same. These reasons will apply equally even to the private sector companies and government companies which have got coal blocks for free but have been unable to produce coal.
A large part of the coal reserves in India are in the naxal dominated areas of Chattisgarh, Jharkhand, West Bengal, Odisha and Maharashtra. So operating in these regions isn’t really easy. Over and above this, a lot of reserves are in forest areas. Mining in these areas needs clearance from the state governments and that is not easy to come. The overall environmental clearance comes from the Ministry of Environment and Forests and in this day and age of environmental activism, this clearance also takes time.
But the biggest problem for Coal India has been land acquisition. There are several reasons for the same. Over the years the government of India has forcibly acquired land for a lot of its projects and paid peanuts in return to the landholders. In some cases in the state of Jharkhand, money has still not been paid to original landholders even decades after the land was acquired to set up a big public sector unit.
There is a very little attempt made to rehabilitate the people whose land is being acquired. This writer has seen homes that were built by the Central Coalfields Ltd (a 100% subsidiary of Coal India which is headquartered in Ranchi and operates coal mines in the state of Jharkhand) for people whose land was acquired to mine coal and they were unlivable to say the least. Due to these reasons people don’t want to part with their land.
Also acquisition of land requires coordination with the local District Commissioners (DCs). The DCs are usually so overburdened with work that land acquisition isn’t really a top of agenda for them. Over the years the issue has become so politicised that bureaucrats like to stay away. The state governments are not interested because by forcibly acquiring land they are likely to lose votes.
On occasions even when the land is acquired the government can re-allocate the land for some other use like building a railway line. So the main thing to get the coal production going in this country is to have a proper land acquisition process. People whose land is acquired need to be properly compensated and rehabilitated. They should be willing to part with their land.
To conclude
Several suggestions have been made for setting the prevailing situation right. Commentators have asked for setting up of another government owned coal company. Several others have asked for auctioning of the coal blocks and allowing private sector companies to operate freely to mine coal.
All these are good suggestions in their own right but they won’t work unless the land acquisition process is cleaned up. If that does not happen coal production in India cannot be increased fast enough to meet all the emerging demand. And that is the main learning that the government needs to take from what is being called Coalgate.
(The article originally appeared in The Pioneer on September 9,2012. http://www.dailypioneer.com/sunday-edition/sundayagenda/cover-story-agenda/93154-the-dirty-business.html)
(Vivek Kaul is a Mumbai based writer and can be reached at [email protected])
All you wanted to know about the COAL SCAM but didn't know where to ask…
Vivek Kaul
What is the basic issue?
Between 1993 and 2011, the government of India gave away 206 coal blocks for free to government and private companies.
So if these blocks were being given away free from 1993, why so much commotion now?
The Comptroller and Regulator General(CAG) in a recent report estimated that the losses due to the policy of the government giving out coal blocks for free, amounted to Rs 1.86lakh crore.
Why is the Congress led UPA government being blamed if the policy started in 1993?
Estimates made by stock brokerage CLSA suggest that only 41 out of the 206 blocks given away for free, were allocated before the end of 2003. This means that 165 blocks were allocated between 2004 and 2011. The Congress led UPA government has been in power since May 2004. This amounts to nearly 14% Hence, a major number of coal blocks were given away free during the UPA rule.
And how is Prime Minister(PM) Manmohan Singh involved in all this?
The PM also happened to be the coal minister between 2006 and 2009. During this period 134 coal blocks were given away for free. Estimates made by Nomura Equity Research suggest that between 2006 and 2009 the coal blocks given away for free had geological reserves of around 40 billion tonnes. India has around 286billion tonnes of geological reserves of coal. This means that around 14% of total geological reserves of coal was given away free during the period Manmohan Singh was the coal minister.
What was the purported reason for giving the coal blocks for free?
This was done in order to increase the total coal production in the country. The government owned Coal India Ltd which accounts for 80% of the total coal production in the country hasn’t been able to produce enough to meet the growing energy needs of the country. Between April 1, 2004 and March 31, 2012, the production of coal by Coal India has increased by just 65million tonnes to 436million tonnes. This means a growth of a mere 2.3% per year on an average.
What is the reasoning behind CAG coming up with the Rs 1.86lakh crore number?
The CAG reasonably assumed that the coal mined from the coal blocks given away for free could have been sold at a certain price in the market. Since the government gave away the blocks for free it lost that opportunity. This lost opportunity is what CAG has tried to quantify in terms of a number.
So what were the assumptions that the CAG worked with?
While calculating the loss the CAG did not take into account the coal blocks given to the government companies. Only blocks given to private companies were taken into account. Further only open cast mines were included in calculating the loss. Underground mines were not taken into account.
How were the numbers worked out?
The total coal available in a block is referred to as geological reserve. Due to several reasons including those of safely, the entire geological reserve cannot be mined. The portion that can be mined is referred to as extractable reserve. The extractable reserves for the blocks (after ignoring the blocks owned by government companies and underground mines) came to 6282.5million tonnes. This is equivalent to more than 14 times the annual production of Coal India Ltd. And this is the amount of coal the government would have been able to sell if it had not given the blocks away for free to private companies.
But that’s just coal in tonnes, how did CAG arrive at a loss of Rs 1.86 lakh crore?
The government gave away 6282.5million tonnes of coal for free. It could have sold it at a certain price. Also mining this coal would have involved a certain cost. The CAG first calculated the average sale price for all grades of coal sold by Coal India in 2010-2011. This came to Rs 1028.42 per tonne. Then it calculated the average cost of production for all grades of coal for the same period. This came at Rs 583.01. Other than this there was a financing cost of Rs 150 per tonne which was taken into account, as advised by the Ministry of Coal. Hence a benefit of Rs 295.41 per tonne of coal was arrived at (Rs 1028.42 – Rs 583.01 – Rs 150).
The losses were thus estimated to be at Rs 1,85,591.33 crore (Rs 295.41 x 6282.5million tonnes) or around Rs 1.86lakh crore, by the CAG.
But isn’t Rs 1.86 lakh crore a very big number?
Yes it is a very big number. But still a conservative estimate. The CAG does not take into account the losses on account of blocks given away free to government companies. As I had mentioned on an earlier occasion in this newspaper, the transaction of handing over a coal block was between two arms of the government. The ministry of coal and a government owned public sector company (like NTPC). In the past when such transactions have happened revenue earned from such transactions have been recognized. A very good example is when the government forces the Life Insurance Corporation (LIC) of India to buy shares of public sector companies to meet its disinvestment target. One arm of the government (LIC) is buying shares of another arm of the government (for eg: ONGC). And the money received by the government is recognized as revenue in the annual financial statement. So when revenues for transactions between two arms of the government are recognized so should losses. Hence, the entire idea of the CAG not taking losses on account of coal blocks given to pubic sector companies does not make sense. If they had recognised these losses as well, losses would have been greater than Rs 1.86lakh crore.
So this number could have been bigger?
Yes. The other point to remember here is that the CAG had assumed extractable reserves of a conservative 73% in case of mines were mine plans were not available. Typically extractable reserves are around 80-95% of geological reserves. The CAG has also been very conservative in calculating the benefit per tonne of coal by taking the average price of coal sold by Coal India Ltd. This price is typically the lowest in the market. Coal from other sources is very expensive. Coal India also sells coal through an e-auction. The price of coal sold through this route is higher than the normal Coal India price. As the CAG has pointed out in its performance audit of ultra-mega power projects, the average e-auction price for Coal India coal was Rs 1782 per tonne in 2010-2011. Imported coal sells at an even higher price. The landed cost of imported coal was Rs 2874 per tonne (based on NTPC data for November 2009), reports CAG. If these prices had been taken into account or a weighted average price would have been created using these prices as well as the average Coal India price of Rs 1028.42 per tonne, the loss number would have been higher than Rs 1.86lakh crore.
If all this is true, so what was that Chidambaram said about zero losses?
The union Finance Minister P Chidambaram wanted us to believe that almost all companies which have been given free coal blocks have not started to mine coal till date. Hence there are no losses. This is like saying that I gave away my house for free, but since the person I gave it away to is not able to sell it, hence I did not face any losses.
What about the argument that coal is a natural resource and hence should not be auctioned?
People who have come up with this argument also need to realize that coal like air is not an unlimited natural resource. So air need not be priced because it is unlimited, but coal needs to be priced because it is limited. And if that had not been the case the government would be giving away all the coal that Coal India produces for free.
(The article originally appeared in the Daily News and Analysis on September 3,2012. http://www.dnaindia.com/india/report_all-you-wanted-to-know-about-the-coal-scam_1735936))
Vivek Kaul is a writer and can be reached at [email protected]
Canaries and coal mines
Vivek Kaul
Music has got its share of one hit wonders. Delhi born singer and musician Peter Saerdest fits that category. His most famous claim to fame being the 1969 hit “where do you go to (my lovely)”.
The song is about a fictional girl called Marie Clare. There is a paragraph in the song which brings out the unhappiness in her life. Here is how it goes:
But where do you go to my lovely
When you’re alone in your bed
Tell me the thoughts that surround you
I want to look inside your head, yes i do.
Now this is a question that I have been wanting to ask the Prime Minister (PM) Manmohan Singh as the country moves from one scam to another. What are the thoughts that go inside his head? The forever quiet PM finally obliged us when he issued a statement on the coal gate scam and put the blame on his predecessors and the Comptroller and Auditor General(CAG) of India, for coming up with a loss number of Rs 1.86 lakh crore.
The policy of the government allocating coal blocks for free was introduced in 1993, and so it was not right to blame the Congress led United Progressive Alliance (UPA) felt the Prime Minister. Fair point, one must say.
But as the numbers calculated by the international stock brokerage CLSA show a major part of the coal blocks were given away for free only after the Congress led UPA came to power in May 2004. Of the 100 coal blocks given away free to government companies between 1993 and 2011, 83blocks were handed over after 2003. The same stands true for private sector companies where 82 out of the 106 blocks were allocated after 2003.
So while it might be true that UPA did not start the policy but what Manmohan Singh cannot deny is that they went around implementing it with a vengeance. The geological reserves of the coal blocks given away for free amounted to around 41billion tonnes. The total geological reserves of coal in India amount to around 286billion tonnes which means 14% of it was given away for free.
Hence, the question that the PM still needs to answer is that why was there a sudden increase in the allocation of blocks between 2004 and 2009, and especially during his tenure as the coal minister between 2006 and 2009?
The answer might most probably lies in the price of coal which started to shoot up around the time UPA first came to power. Prices shot up from around $30-40 per tonne to around $190 per tonne internationally in mid 2008. The conclusion that one can draw from this is that before 2004 it was cheap to just buy coal off the market. But after that things changed and it made more sense for companies to have direct access to coal.
The PM in his statement has also claimed that the loss number of Rs 1.86 lakh crore arrived at by the CAG can be questioned on a number of technical points.
The CAG has calculated the loss number based on certain assumptions. It has only taken into account mines given to private sector companies for free. Those allotted to government companies have been ignored. Underground mines have also not been taken into consideration.
So these assumptions work in favour of the government. If the government blocks had also been taken into account the loss number would have dramatically shot up. It need not be said that the PM does not talk about this anywhere in his statement.
The extractable reserves of these private sector coal blocks come to 6282.5million tonnes of coal. This is the amount of coal that the CAG feels could have been mined and sold and has been given away for free. The average benefit per tonne of this coal was estimated to be at Rs 295.41.
As Abhishek Tyagi and Rajesh Panjwani of CLSA write in a report dated August 21, 2012,”The average benefit per tonne has been arrived at by first, taking the difference between the average sale price (Rs1028.42) per tonne for all grades of CIL(Coal India Ltd) coal for 2010-11 and the average cost of production (Rs583.01) per tonne for all grades of CIL coal for 2010-11. Secondly, as advised by the Ministry of Coal vide letter dated 15 March 2012 a further allowance of Rs150 per tonne has been made for financing cost. Accordingly the average benefit of Rs295.41 per tonne has been applied to the extractable reserve of 6282.5 million tonne calculated as above.”
Using this method CAG arrived at the loss figure of Rs 1,85,591.33 crore (Rs 295.41 x 6282.5million tonnes) or around Rs 1.86 lakh crore. Analysts who track coal believe that assuming a profit of Rs 295.41 per tonne is a fairly conservative estimate.
In fact as has been reported elsewhere, if the e-auction prices of coal would have been considered, the losses would have been at Rs 11.2lakh crore. And if the calculations had been done using the imported coal prices the losses would amount to Rs 18lakh crore. These are huge numbers. The total expenditure of the government of India for the year 2011-2012 was estimated to be at around Rs 13.2lakh crore.
Another bogey that has been raised by the sympathizers of the Congress party (not by the PM) is that coal is a natural resource and hence cannot be “auctioned” or sold at a market price. What they forget to tell us is that coal is a limited natural resource and hence it needs to be priced correctly and not given away for free. If that was not the case why does the government price products like petrol, diesel, telecom spectrum etc? These products are also either natural resources or derivatives of natural resources. Why does Coal India Ltd sell coal at a certain price? Why not give it away for free?
By giving away coal blocks for free the nation has faced huge losses. Whether its Rs 1.86 lakh crore or Rs 18 lakh crore is a matter of conjecture, but that does not take away the fact that losses have been huge. Given this, the PM and the Congress party, are just trying to practice the old adage: “if you can’t convince them, confuse them”.
(The article originally appeared on Asian Age/Deccan Chronicle on September 2,2012. http://www.deccanchronicle.com/editorial/dc-comment/canaries-coal-951)
(Vivek Kaul is a Mumbai based writer. He can be reached at [email protected])