Lessons from Coalgate and Naveen Jindal: It is important to save capitalism from capitalists

Fostering Public Leadership - World Economic Forum - India Economic Summit 2010

Vivek Kaul


In an interview to NDTV, Naveen Jindal , chairman of Jindal Steel and Power, and Congress politician said that his company would not be able to pay the fine imposed by the Supreme Court. “We will not be able to pay it..because we have not made a provision for it,” Jindal said.
Jindal also told the television channel that the Supreme Court decision “was a ‘setback’ for companies which have mined coal for the past 20 years to generate power and make steel, and now been told that what they are doing is illegal, while they have been creating wealth for the country.”
In a decision on September 24, 2014, the Supreme Court had cancelled 204 out of the 218 coal blocks allocated by the government since 1993. The coal blocks were allocated for free for captive mining. Companies which were given these blocks could use the coal to produce power, iron and steel, aluminium, cement etc. The Court has also fined companies at the rate of Rs 295 per tonne for all the coal that they have produced till date and will continue producing till March 31, 2015, when they need to hand over their mines to the government.
Jindal was the biggest beneficiary of the captive coal block allotments, having been given nine blocks in all. Given this, things he has said in the NDTV interview need to be looked at closely.
The first thing Jindal talks about are “companies which have mined coal for twenty years.”
No company has been mining coal for twenty years. Provisional coal statistics released by the Coal Controller Organisation, which is a part of the coal ministry, shows that coal was first mined by the captive coal blocks only in 1997-98. Also, during this year a minuscule amount of 0.71 million tonnes of coal was produced by these mines. The production crossed 10 million tonnes of coal only in 2004-2005, when these blocks produced 10.11 million tonnes. Hence, serious production from these coal mines has happened only for 10 years and not 20 years as Jindal points out. This was primarily because between 1993 and 2002 only 15 blocks had been allocated to private companies.
This maybe nitpicking, nonetheless it is an important factual point to make given the sensitivity of the issue. In Jindal Steel and Power’s case the Gare Palma IV coal block has been operational from February 1999. This coal mine produced 6 million tonnes of coal in 2013-2014 and is expected to produce a similar amount in 2014-2015.
Further, just because something has been happening for many years, doesn’t mean it is right, even though it may have been government policy. The coal blocks were allocated based on the recommendations of an inter ministerial screening committee. The committee was set up in July 1992 and the coal secretary was its chairman.
As Vinod Rai writes in 
Not Just an Accountant—The Diary of the Nation’s Conscience Keeper “This committee was to scrutinize applications for captive mining and allocate coal blocks for development, subject to statutes governing coal mining, following which the coal minister would approve the allotment…The screening committee is expected to asses applications based on parameters such as the techno-economic feasibility of the end-use project, status of preparedness to set up the end-use project, past track record in executing projects, financial and technical capabilities of applicant companies and the recommendations of the concerned state governments and ministries.”
The committee was supposed to look at each application based on these criteria and then make a decision of who to allot the coal block to. But that doesn’t seem to have happened. As the Supreme Court judgement dated August 25, 2014, clearly points out “The entire exercise of allocation through Screening Committee route thus appears to suffer from the vice of arbitrariness and not following any objective criteria in determining as to who is to be selected or who is not to be selected.”
The judgement further points out that “there is no evaluation of merit and no 
inter se comparison of the applicants. No chart of evaluation was prepared. The determination of the Screening Committee is apparently subjective as the minutes of the Screening Committee meetings do not show that selection was made after proper assessment. The project preparedness, track record etc., of the applicant company were not objectively kept in view.”
Further, the guidelines that the Screening Committee was supposed to follow did not contain “any objective criterion for determining the merits of the applicants.” “As a matter of fact, no consistent or uniform norms were applied by the Screening Committee to ensure that there was no unfair distribution of coal in the hands of the applicants.” The Supreme Court came to this conclusion after studying the minutes of the Screening Committee meetings.
Interestingly, the Comptroller and Auditor General(CAG) had come to a similar conclusion when it had audited the procedure for allotment of coal locks in mid 2011. As Rai points out “The process that the committee actually followed was not really clear from the records. All that the records showed was that the committee met, deliberated and merely recorded the name of the block allotted to a company, and the state where the end-use plant existed. It is left to the reader to decide if transparency was a victim and, if so, how audit erred in pointing out this lacuna.”
The problem was that even if the Screening Committee wanted to follow objective criteria, at times it was simply not possible. Former coal secretary P C Parakh (who took over as coal secretary in the second week of March 2004) explains this in 
Crusader or Conspirator—Coalgate and Other Truths “By the time I took charge of the ministry, the number of applicants for each block had increased considerably although still in single digits. I found a number of applicants fulfilling the criteria specified for allocation of each block on offer. This made objective selection extremely difficult.”
In fact in the years to come the situation became much worse as more and more companies applied for coal blocks. As Parakh writes “According to CAG’s report, 108 applications were received for Rampia and Dip Side of Rampia Block [names of two coal blocks]. I found it difficult to make an objective selection when the number of applicants was in single digits. How could the Screening Committee take objective decisions when the number of applicants per block had run into three digits?”
Parakh to his credit realized pretty early that the Screening Committee method of allotment wasn’t working. In fact, in his book Parakh goes on to list several reasons on why giving away coal blocks free for captive mining by companies just did not make sense. By giving away coal blocks for free, companies which had no experience in coal mining were getting into a totally unrelated field. The government had no way of monitoring whether the captive mine was being used for captive use. Or was the company, which had got the coal block, selling the coal it was producing in the open market and thus “promoting corruption and black money”. Further, the system of allocation of coal blocks for free was discriminatory. It offered a huge premium to companies which managed to get a free coal block, in comparison to ones that did not.
Hence, Parakh proposed to Manmohan Singh(who had taken over as coal minister) in August 2004 that coal blocks should be allotted through the competitive bidding route. Before he did this Parakh had even called an open discussion of all the stakeholders in June 2004.
The stakeholders included the business lobbies FICCI, CII and Assocham, other ministries whose companies had applied for coal blocks and private companies.
Parakh points out that most invitees were not in favour of competitive bidding of coal blocks. As he puts it “not many participants were enthusiastic about open bidding. Their main argument was that the cost of coal to be mined would go up if coal blocks were auctioned.”
Parakh suggests that assuming that business men bidding for coal blocks (if such a process were to be introduced) would drive up the price of coal to astronomical levels is suggesting that they are stupid. As he writes “Participants at open auctions are hard-headed businessmen with an acute sense of profitability. They do not make irrationally high bids. The price at which coal from CIL[Coal India Ltd] was available would automatically put a cap on the bid amount.”
The industry ultimately resisted open bidding simply because until then they had been getting coal blocks for free. And if something is available for free why pay for it. “To an extent, it was a reflection of corporate India’s aversion to transparency,” writes Parakh.
Nevertheless on August 20, 2004, Manmohan Singh approved allocation of coal blocks through the competitive bidding route. Immediately after this a number of letters written by MPs opposing competitive bidding started coming in. As Parakh writes “This included one from Mr Naveen Jindal who had considerable interest in coal mining.”
This is when Dasari Narayana Rao, the famous Telgu film director, who was the minister of state for coal. entered the scene. As Rai points out in his book “Rao, observed that any change in the procedure for the allocation of coal blocks would invite further delay in allocation.”
As Rao wrote while submitting the file to Manmohan Singh: “It is difficult to agree with the view that Screening Committee cannot ensure transparent decision-making. This alone was not adequate ground for switching over to a new mechanism, particularly when the interests of core infrastructure areas are involved.”
On March 25, 2005, Manmohan Singh “recorded the approval of the cabinet note seeking sanction of the competitive bidding system,” Rai points out. But Rao still did not give up and kept talking about the “cost implications” of the competitive bidding system of allocation of coal blocks. He finally succeeded and on July 25, 2005, it was decided that the coal ministry would continue to allot coal to blocks through the Screening Committee route.
In May 2014 the enforcement directorate slapped money laundering charges against Rao and Jindal. 
As the PTI reported “The agency, according to sources, has framed the charges after it found multi-layered transactions between the firms owned by Jindal to Rao’s firms based in Hyderabad and “illegal money” was routed for alleged favours given for the allocation of coal firms to Jindal.”
Interestingly Jindal told NDTV that “one of the Jindal companies had lent money to an unrelated company, which in turn invested in a company in which the Mr Rao had a controlling stake.”
Given this, the situation is not as simplistic as Jindal tried to project in his NDTV interview. Also, between the Supreme Court and the CAG it has been clearly established that the Screening Committee route to allot coal blocks was not transparent at all and companies which got coal blocks benefited from this lack of transparency. Given this, it led to the Supreme Court cancelling 204 out of the 218 blocks that had been allocated, including coal mines which were already under operation.
Jindal in his interview also told NDTV that his company won’t be able to pay the fine imposed by the Supreme Court because they hadn’t made a provision for it. The Supreme Court has fined the companies already operating coal blocks Rs 295 per tonne for all the coal that they have produced till now and all the coal they will continue to produce till March 31, 2015, when they need to hand over the mines back to the government. This in a way took care of what Parakh termed as discriminatory. As he writes “The [Screening Committee] system of allocation of captive [coal] blocks offers huge advantage to industries that get coal blocks over those who are not able to get coal blocks.”
Edelweiss Securities estimates that Jindal Steel and Power will have to pay a fine of close to Rs 3000 crore. While the company may not have made a provision to pay the fine, it needs to be pointed out that as on March 31, 2014, the company had a balance sheet size of Rs 74,072.1 crore. Its reserves and surplus amounted to Rs 22,519 crore. It had cash and bank balances of Rs 1,015.28 crore. Further, in the last two financial years it has made a total profit of Rs 4820.5 crore.
Also, let’s calculate the financial benefit arising out of the Gare Palma IV coal block which as pointed out earlier has been operational from February 1999. This coal mine produced 6 million tonnes of coal in 2013-2014 and is expected to produce a similar amount in 2014-2015.
A research report brought out by Kotak Institutional Equities suggests that it costs Rs 600-800 per tonne to produce captive coal. In comparison, it costs Rs 3,500 per tonne to import coal. Hence, imported coal is four to five times more expensive than captive coal.
So the cost of producing 12 million tonnes of coal over a two year period at the upper end cost of Rs 800 per tonne would have been Rs 960 crore. Along with a fine of Rs 295 per tonne this amounts to Rs 1314 crore. Consider the other possibility of importing coal at Rs 3500 per tonne. This would have cost the company Rs 4200 crore. The difference between these two numbers comes to Rs 2886 crore. This calculation just takes the last two years into account. Nevertheless the mine has been functioning for close to 15 years now.
The total fine that the company needs to pay amounts to around Rs 3000 crore. Hence, even after it pays the fine the company would have managed to save a lot of money over the years because it got the coal block for free through a process which wasn’t transparent at all.
In fact, Jindal isn’t the only one protesting. The pink papers over the last few days have been full of quotes criticizing the Supreme Court’s decision to cancel the coal block allocations. But when a process has not been transparent for 20 years, it needs to be cancelled. And when this happens, there are bound to be repercussions, which the incumbents won’t like.
As the American author Upton Sinclair once wrote “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!” The corporates and their lobbies who are coming out against the Supreme Court’s decision are a good example of this.
It needs to be pointed out here that only 40 out of 218 coal blocks are currently operational. Companies, given that they had got blocks for free, seemed to be in no hurry to start production. That wouldn’t have been the case, had they paid for it in the first place.
To conclude, it is worth quoting what Raghuram Rajan and Luigi Zingales write in 
Saving Capitalism from the Capitalists “Since a person may be powerful because of his past accomplishments or inheritance rather than his current abilities, the powerful have a reason to fear markets…Those in power – the incumbents – prefer to stay in power.” Jindal clearly would have liked that.
The article originally appeared on www.FirstBiz.com on Sep 28, 2014

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

Vinod Rai has had the last laugh on Coalgate. Here’s why

Inclusive Governance: Enabling Capability, Disabling Resistance

Vivek Kaul

In an interview with the Business Standard in September 2013, Jairam Ramesh was asked why the Congress party was losing ground so badly in urban India. “Because of the bhumihar from Ghazipur,” Ramesh replied. He was referring to the former Comptroller and Auditor General (CAG) of India, Vinod Rai, who had retired from his post in May 2013. The CAG in a series of reports had exposed the wrongdoings of the government.
As Rai writes in
Not Just an Accountant—The Diary of the Nation’s Conscience Keeper “Jairam Ramesh was a regular visitor to the CAG headquarters for discussions on the audit of the national rural employment guarantee programme. His discussions did indeed lend value. In one of the conversations with me, he asked why N.K.Singh, the Rajya Sabha MP representing the Janata Dal(United), used to refer to me not only as a bhumihar but as a ‘bhumihar from Ghazipur’. I told him I did know what it meant.” Rai further writes that even his caste was brought into prominence, “and this after sixty-seven years of independence.”
Ramesh’s quip against Rai was a part of a series of statements made by leaders of the Congress party to discredit him. This after, the CAG had meticulously gone about exposing wrongdoings of the government in the telecom, coal, sports and aviation sectors.
Manish Tewari, the Congress leader who can speak on just about anything, said that the “R-virus has infected the Indian growth story. The R-virus stands for a phenomenon were responsible individuals decide to become loose cannons.” On another occasion Tewari said “When individuals decide to go rogue, institutions suffer. That possibly has the most detrimental effect on the India growth story.” Sharad Pawar, who is a part of the UPA, and was the food and agriculture minister in the UPA government said “CAG has taken certain decisions that have created a different atmosphere in the country… I haven’t seen anything like this in the forty-five years of my career as a politician.” Montek Singh Ahluwalia, the deputy chairman of the Planning Commission, went on to claim that “untrained staff [is] auditing CAG reports.” The business lobby ASSOCHAM even went to the extent of releasing advertisements which said that CAG reports were sending wrong messages. The advertisement went on to state “The CAG’s conclusions over the 57 coal block allotment appear to have been arrived at without taking all facts into consideration. Only one of the 57 blocks has gone into production.”
The then finance minister P Chidambaram even went to the extent of saying that the government had faced no loss from giving away coal blocks free to private and public sector companies. “If coal is not mined, where is the loss? The loss will only occur if coal is sold at a certain price or undervalued,”Chidambaram had said.
In order to understand this statement we need to go back to the early 1990s. The government at that point of time realized that enough coal was not being produced. The Coal Mines(Nationalisation) Act was amended with effect from June 9, 1993. This was done largely on account of the inability of Coal India Ltd (CIL), which produces most of India’s coal, to produce enough coal.
The coal production in 1993-94 was 246.04 million tonnes, up by 3.3% from the previous year. This rate was not going to increase any time soon as newer projects had been hit by delays and cost over-runs, as still often happens in India. As the 
Economic Survey of 1994-95 pointed out “As on December 31, 1994, out of 71 projects under implementation in the coal sector, 22 projects are bedevilled by time and cost over-runs. On an average, the time over-run per project is about 38 months. There is urgent need to improve project implementation in the coal sector.”
The idea, as the Economic Survey of 1994-1995 pointed out, was 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 amendment to the Coal Mines (Nationalisation) Act 1973 allowed 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 and iron and steel. Any excess coal was to be handed over to the local subsidiary of the Coal India Ltd.
Between 1993 and 2011, 195 coal blocks were given away for free to public and private sector companies for captive use. Most of these free coal blocks were given away between 2004 and 2011. Nevertheless even by 2011-2012, these coal blocks produced only 36.9 million tonnes of coal. This amounted to around 6.8% of the total production of 539.94 million tonnes during the course of that year.
And because very little coal was being produced in these captive mines, this led Chidambaram and the industry lobby Assocham to put forward the argument that since coal was not being mined how did the government face any losses? This was a really stupid argument to make. The government handed over a natural asset free to private and public sector players. They, in turn, were not able to mine coal from it quickly enough. How does that mean that the government did not face any losses? It does not change the fact that coal blocks were essentially handed over for free.
As Rai puts it in his book: “I thought any prudent and concerned industry body would have questioned the urgency to allot when the allottees had not even commenced mining. But then, since every person who wanted to display his loyalty to the government was hastening to take potshots at the CAG, why not an industry body?”
Interestingly, Manmohan Singh explained the inability of the private coal producers to start producing coal quickly enough by saying “it is true that the private parties that were allocated captive coal blocks could not achieve their production targets. This could be partly due to the cumbersome processes involved in getting statutory clearances.”
This Rai says is a defeatist argument. As he writes “This does appear to be a defeatist argument; if the government is aware that the processes are cumbersome and accords the process urgency, it is incumbent on the government to take steps to ensure speedy clearances.”
The CAG came in for heavy criticism for coming up with a loss figure of Rs 1,86,000 crore for these coal blocks being given away free by the government. In his book, Rai explains with great clarity how this number was arrived at. The CAG worked with most conservative estimates while coming up with this number. While calculating the loss the CAG did not take into account the coal blocks given to the public sector companies. Only blocks given to private sector companies were taken into account.
The total geological reserves of the coal blocks given away for free amounted to around 44.8 billion tonnes. The total amount of coal in a block is referred to as geological reserve. But not all of it can be extracted. Open cast mining of coal typically goes to a depth of around 250 metres below the ground whereas underground mining goes to a depth of around 600-700 metres. Beyond this, it is difficult to extract coal.
The portion of the geological reserves that can be extracted are referred to as extractable reserves. The CAG worked with fairly conservative estimates on this front as well. Typically extractable reserves are around 80-95% of geological reserves. As Rai writes “Audit based its computation on [the] conservative estimate of 73 million tonnes for every 100 million tonnes given in the GR [geological reserve]…Can audit be faulted if its computation was based on a conservative estimate of 73 per cent?…The extractable reserves…based on the aforementioned method, was found by the CAG to be 6282.5 million tonnes, which is mentioned in the report.”
So only 6282.5 million tonnes of the 44.8 billion tonnes of geological reserves was assumed as extractable reserves while calculating the losses of the government due to giving away coal blocks for free.
After establishing the extractable reserves the CAG needed to establish the price at which this coal could be sold as well as the cost of production of this coal. For establishing the price at which the coal cold be cold, the CAG considered three possible options.
“The first was by imports. The average import price of non-coking coal sourced from Indonesia during 2010-2011 was Rs 3,678 per tonne (Indonesia supplied most of our non-coking coal imports). The second source was the coal sold in e-auction by Northern Coalfields Limited, a subsidiary of CIL [Coal India Ltd] based in Singrauli. The third and major source of coal supply in the country was that which was mined and supplied by CIL. Audit utilized the only creditable data available in the public domain—that of CIL. CIL is regularly audited by the CAG, so its accounts and other details can be taken as authentic. From the audited accounts of 2010-2011, the average sales price of all grades of coal sold by CIL was taken as Rs 1,028 per tonne. This was the most conservative price too,” writes Rai.
After this, the cost of production of coal needed to be established. For this, the CAG again went back to CIL, which produces most of the coal in the country. As Rai writes “The average cost of coal mined by CIL was found to be Rs 583 per tonne. The MoC has indicated, after due verification, that the financing cost ranged from Rs 100 to Rs 150 per tonne. To be on the safe and conservative side, audit assumed it to be at Rs 150. Thus, while the average sale price was Rs 1,028, the average cost was Rs 583 plus Rs 150, namely Rs 733,” writes Rai.
Manmohan Singh later criticized this calculation by saying “the cost of production of coal varies significantly from mine to mine even for CIL due to varying geo-mining conditions, method of extraction, surface features, number of settlements, availability of infrastructure etc.”
By taking the average cost of production these are exactly the factors that CAG was taking into account. And this left Rs 295 per tonne (Rs 1028 minus Rs 733) as the financial benefit. So Rs 295 of financial benefit per tonne was multiplied with 6282.5 million tonnes of extractable reserves and a loss figure of close to Rs 1,86,000 crore was arrived at.
As you can clearly see the most conservative estimates had been used to arrive at a loss number. If the CAG had not used these conservative estimates it could have easily put out a much bigger number for these losses.
Another criticism that the CAG came in for was that the loss calculation did not take the concept of net present value(NPV) into account. “Even if discounting had been done to arrive at the NPV, we would have possibly projected an annual increase of 10 per cent in cost/sale price, and we would then have discounted, at, say, a discount factor of 10 per cent. We would have got to an NPV of financial gain of Rs 2.40 lakh crore, at 11 per cent of Rs 1.86 lakh crore and at 12 per cent of Rs 1.49 lakh crore. There is no substantial difference. Hence, why all the ire?”
In the end, Vinod Rai has had the last laugh. The Supreme Court in a recent decision deemed the allocation of coal blocks to be illegal. And for those who are still not convinced about the way Rai operated as the CAG, it is time they read his book.
The article appeared on www.FirstBiz.com on Sep 16, 2014

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

If Modi is Goebbels, what does that make Digvijay?

Vivek Kaul
Digvijay Singh, currently one of the powerful general secretaries in the Congress party, was born in February 1947. Given this he must have been in his late teens when the Yash Chopra directed multi-starrer Waqt released in 1965.
While I am not sure whether Singh is a movie buff or not, chances are he might have seen the movie. We all do when we are in our teens.
There are two things from Waqt that have survived the test of times. One is the qawali “ae meri zohra jabeen” sung by Manna De, set to tune by Ravi, and written by the great Sahir Ludhianvi.
Another is a dialogue written by Akhtar-Ul-Iman and spoken by Raj Kumar in the movie, which goes like this: “Chinoi Seth…jinke apne ghar sheeshe ke hon wo dusron par pathar nahi feka karte (Chinoi Seth…those who live in glass houses don’t throw stones at others).”
If Digvijay Singh hasn’t seen this movie its time he did. If watching a 206 minute long movie doesn’t fit into his scheme of things, he can at least watch this 18 second YouTube clip, to realise that those who live in glass houses don’t throw stones at others.
Singh has accused Narendra Modi of being well trained by the Rashtriya Swayemsevak Sangh (RSS) in the “Nazi tradition” of false propaganda. He tweeted twice on this to say:
1. “Sangh trains it’s cadre in disinformation campaign. Obviously Modi has been trained well! Sangh has modeled itself in the Nazi tradition.”
2. “Sangh training to its cadre. Jhoot bolo zor se bolo aur baar baar bolo (Tell a lie, tell it loudly and tell it hundred times). Doesn’t it remind you of Hitler’s Goebbels?
These tweets came after Narendra Modi accused the government of having spent Rs 1880 crore in the treatment of Sonia Gandhi’s mysterious illness. Modi claimed to have got this number from a media report.
Singh has compared Modi to Paul Joseph Goebbels who was a German politician and Adolf Hitler’s Minister of Propaganda in Nazi Germany. There is no denying that Modi might be wrong with his Rs 1880 crore claim but the fact of the matter is that the Congress leaders including Digvijay Singh have been doing the same thing that they have just accused Modi of i.e. false propaganda, over and over again.
Let’s take a look at something that Digvijay Singh said in the context of the coalgate scam sometime back. “The way the CAG is going, it is clear he (i.e. Vinod Rai) has political ambitions like TN Chaturvedi (a former CAG who later joined the BJP). He has been giving notional and fictional figures that have no relevance to facts. How has he computed these figures? He is talking through his hat,” said Singh.
The CAG put the losses due to the government giving away coal blocks for free at Rs 1,86,000 crore. Singh would like us to believe that the figures put out by the CAG were notional and fictional and had no relevance to facts. As I explain here it was Singh and not the CAG who was talking through his hat.
Singh’s esteemed colleague, the finance minister P Chidambaram, also tried to tell the nation that there had been no loss in coalgate. “If coal is not mined, where is the loss? The loss will only occur if coal is sold at a certain price or undervalued,” said Chidambaram.
The union Finance Minister wanted us to believe that since almost all companies which got free coal blocks have not started to mine coal till date, hence there have been 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.
Chidambaram was basically trying to confuse us by mixing two issues here. One is the fact that the government gave away the blocks for free. And another is the inability of the companies who got these blocks to start mining coal. Just because these companies haven’t been able to mine coal doesn’t mean that the government of India did not face a loss by giving away the mines for free. (You can read the complete argument here).
Kapil Sibal the union telecom minister wanted us to believe that the government hadn’t faced any losses by giving away licenses to telecom companies on a first come first serve basis rather than auctioning them. The CAG had put these losses on account of this at Rs 1,76,000 crore. What these examples clearly bring out is that Congress leaders like Digvijay Singh are indulging in false propaganda of the worst kind, something they have just accused Narendra Modi of.
Another interesting point is that there can be a clear difference of opinion when it comes to the losses suffered by the government on account of coalgate. The assumptions that CAG worked with put the losses at Rs 1,86,000 crore. As I showed in an earlier piece with some more aggressive assumptions the losses could have even shown to be at Rs Rs 13.5 lakh crore (You can read about it here).
But there can be no such variation when it comes to the amount of money that the government has been spending on the treatment of Sonia Gandhi’s illness (if at all it has). A very simple way to puncture Narendra Modi’s argument is to just tell the nation, how much money has really been spent.
Modi claims that the government has spent around Rs 1880 crore or around $356 million on Sonia Gandhi’s illness.  That’s a lot of money. If that is not the right amount, what is the right amount? All it needs is a simple clarification from the government.
And that hasn’t come. What has come is a comment that accuses Modi being a Nazi. As an earlier piece on this website pointed out that there is an RTI application pending before the UPA government asking for details of her visits, the amounts spent and for what purposes. What Singh’s comment also shows is that the Congress doesn’t know how to tackle Modi in Gujarat. Sonia Gandhi in 2007 had labeled him maut ka saudagar. Singh has now labeled him a Nazi. By trying to tarnish Modi’s image the Congress is only helping Brand Modi become much stronger at least in Gujarat. And that can’t be clearly good for a party which claims to be secular.
The article originally appeared on www.firstpost.com on October 3, 2012. http://www.firstpost.com/politics/if-modi-is-goebbels-what-does-that-make-digvijaya-477800.html
(Vivek Kaul is a writer. He can be reached at [email protected])

Coalgate is 94 percent Congress scam, 6 percent others

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])

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]