What Vinod Rai's book proves: History will not be kind to Manmohan Singh

India's PM Singh speaks during India Economic Summit in New DelhiVivek Kaul


In January 2014, towards the end of his second term,
Manmohan Singh spoke to the media for the third time in a decade. On this occasion he said “I honestly believe that history will be kinder to me than the contemporary media.”
While speaking to the media Singh also said “I feel somewhat sad, because I was the one who insisted that spectrum allocation should be transparent, it should be fair, it should be equitable. I was the one who insisted that coal blocks should be allocated on the basis of auctions. These facts are forgotten.”
If that was the case then why did the allocation of 2G(second generation) telecom licenses and coal blocks end up in a mess? This Singh did not elaborate on during the course of his interaction with the media in January, earlier this year. Neither has he chosen to elaborate on these points since then.
Vinod Rai, the former Comptroller and Auditor General (CAG), analyses both these issues and the role Singh played in them, threadbare, in his new book
Not Just an Accountant—The Diary of the Nation’s Conscience Keeper. In this piece we shall look at the mess that the issuance of 2G telecom licenses ended up in and leave the discussion on what came to be called coalgate, for sometime later this week.
Rai in his book through a series of documented evidence shows how Singh was fully aware of what was going on, but still chose to not to do anything about it. Instead, he even went to the extent of distancing himself from the decisions made by the communications minister A Raja.
As Rai writes “You [Manmohan Singh] engaged in a routine and ‘distanced’ handling of the entire allocation process, in spite of the fact that the then communications minister A Raja, had indicated to you, in writing, the action he proposed to take. Insistence on the process being fair could have prevented the course of events during which canons of financial propriety were overlooked, unleashing what probably is the biggest scam in the history of Independent India.”
Before we get into the details of what probably led Rai to make such a strong statement, we need to take a brief look at how the Indian telecom sector evolved from the 1990s.
The telecom sector was opened up to the private players in a phased manner after the announcement of the National Telecom Policy (NTP) in 1994. Licenses were initially allotted to private companies in 1995, through the competitive bidding route. These licenses allowed private companies to launch mobile phone telephony in India.
The policy was revised in 1999 and existing mobile phone operators were allowed to migrate to a revenue sharing regime with the government. “The upfront payment was an entry fee, with the annual license fee to be paid separately. The entry fee was fixed on the basis of the highest bid received in the 2001 auction of licenses. It was Rs 1,651 crore for pan-India licenses,” writes Rai. The then prime minister Atal Bihari Vajpayee constituted a group of ministers on telecom in September 2003. The recommendations of this group were added to the National Telecom Policy of 1999. The existing system of issuing licenses were replaced by an automatic authorization regime.
A Raja took over as the communications minister in May 2007. He decided to continue with the first-come-first served(FCFS) policy for allocation of licenses to telecom companies. On September 25, 2007, a press release was issued and 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. This led to the ministry of communications writing to the law ministry and sought its opinion on how to deal with the situation of so many applicants. The law ministry suggested that the issue be referred to the empowered group of ministers(eGOM). Raja did not like this suggestion and on November 1, 2007, wrote a letter to Manmohan Singh.
In this letter Raja complained that the suggestion of the law ministry “is totally out of context”. He then went on to coolly inform the prime minister 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 further told Singh that “the procedure for processing the remaining applications will be decided at a later date, if any spectrum is left available after processing the applications received up to September 25, 2007.”
The rules of the game were changed after it had started. Singh responded immediately on the same day. In his letter, Singh seemed to be concerned over the fact that a large number of applications for new licenses had been received. Given the fact that the spectrum was limited, it would not be possible to give spectrum to all of them, even over the next few years, Singh wrote. He further pointed out that the National Telecom Policy of 1999 had specifically stated that the new licenses be issued subject to the availability of spectrum.
In this scenario, Singh suggested that the communications ministry consider the introduction of a transparent methodology of auction, wherever it was legally and technically feasible. This needed to be done in order to ensure that spectrum was used efficiently.
Also, the entry fee for these licenses was the same as in 2001, i.e. Rs 1,651 crore. Hence, Singh suggested that the entry fee be revised. This was a logical suggestion to make given that six years had passed since 2001 and if not anything at least inflation had to be taken into account.
Raja responded within hours of receiving this letter from Singh. He ruled out an auction stating that “the issue of auction of spectrum was considered by TRAI[the telecom regulator] and the telecom commission and was not recommended as the existing license holders..have got it without any spectrum charge.” Raja went on to add that the holding an auction would thus be “unfair, discriminatory, arbitrary and capricious”.
Meanwhile, Kamal Nath, wrote to Singh on November 3, 2007, and suggested that a group of ministers should be asked to comprehensively study all the issues facing the telecom sector. Raja responded to this on November 15, and said that the Indian telecom industry was doing very well and was adding seven million new customers every month. The shares of the telecom companies listed on the stock market were also doing very well. And given these reasons the suggestion of Kamal Nath of setting up a group of ministers was again “out of context,” as had been the case with the law ministry earlier.
Singh responded on November 21, 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.
All that has been discussed till now raises a series of questions. As Rai writes “[Manmohan Singh] failed to direct his minister[i.e. A Raja] to follow his advice…Why under what compulsion, did the prime minister allow Raja to have his way, which permitted a finite national resource [i.e. the telecom spectrum] to be gifted at throwaway price to private companies—private companies that, going by the minister’s own admission, were ‘enjoying the best results […] which was also reflected in their increasing share prices?”
Also, why was the entry price fixed at Rs 1,651 crore, which was a price set way back in 2001. As mentioned earlier this price should have at least taken inflation into account. The telecom market had also expanded since 2001. 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. “Was this data not available with the government..to counter Raja’s consistent and constant refrain?” asks Rai.
Further, even if increasing teledensity was the main goal, given that the spectrum is finite, didn’t it call for a “balance between revenue generation and achieving social objectives?” 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.”
Also, why was the cut-off date for the last date to receive applications arbitrarily advanced from October 1, 2007 to September 25,2007? As Rai writes “Though Raja clearly indicated this to the prime minister in his letter of 2 November 2007, the PMO chose not to object. Why it chose not to, remains unclear.”
Interestingly, thirteen applicants seem 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.
Then there is the question of first-come-first served. It essentially means those who applied for a license first, would be given a license first. But that wasn’t the case. “One would be surprised to learn that even this procedure, which was repeatedly reiterated to the prime minister by Raja, was given the go-by, and all applications submitted between March 26 and 25 September 2007 were considered together,” writes Rai.
Pulok Chatterjee, a bureaucrat known to be close to the Gandhi family, was an additional secretary in the prime minister’s office at that point of time. In a note that was presented to prime minister Singh on January 6, 2008, Chatterjee concluded that “ideally in a situation where the spectrum is scarce it should be auctioned”. But by that time the licenses had already been issued.
Joint secretary Vini Mahajan recorded that the prime minister wanted Chaterjee’s note to be only “informally shared within the Dept”. She further noted 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?”
Also, it needs to be noted here that Raja suggested that TRAI was against auction of telecom spectrum. This is untrue. In August 2007, the telecom regulator had clearly stated 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.”
The companies which got these licenses cheap, cashed in on it almost immediately. “In case of Unitech, which had no previous experience in the telecom business, Telenor, a Norwegian company, agreed to acquire 67.25 per cent stake for Rs 6,120 crore. Tata Teleservices sold 27.31 per cent stake to NTT Docomo at a value of Rs 12,924 crore. Even Swan Telecom sold 44.73 per cent stake to Etisalat International at Rs 3,217 crore. Is that not clearly indicative of the value the market attached to the 2G spectrum license. Even a cursory back-of-the-envelope calculation will indicate that licenses which could have fetched between Rs 8,000 to Rs 9,000 crore were priced at Rs 1,658,” writes Rai.
On February 2, 2012, the Supreme Court cancelled all the licenses that had been issued by A Raja.
On a slightly different note, Rai also points out it was a ruling party MP (Rai does not give out his name in the book) who seems to have first suggested that losses that the government faced from giving out licenses cheaply, needed to be calculated.
As Rai puts it “He [i.e. the MP] went on to reiterate that it was obvious how much the government of India could have secured by transparent bidding and asserted that even a section officer in the government would be able to make this computation.”
In a recent interview Rai revealed that the name of the MP was KS Rao, who has since quit the Congress protesting against the bifurcation of Andhra Pradesh and joined the BJP.
Rai writes that this was one of the reasons why the CAG decided to compute a loss figure arising out of the 2G telecom licenses being issued cheaply. As he writes “Now if an MP, and of the ruling party, makes such a strong assertion, obviously the audit department has to take cognizance of that parameter for computation.”
The CAG used various methods to compute a loss figure and arrived at a four numbers ranging from Rs 57,666 crore to Rs 1,76,645 crore. All this could have been avoided only if Singh had chosen to respond differently and instead said to Raja that “I have received your letter…Please do not precipitate any action till we or the GoM[group of ministers] have discussed this.”
To conclude, on an earlier occasion I had written that if he wants history to treat him kindly,
Singh needs to write his autobiography and put forward his side of the story as well. Whether he does that or not, remains to be seen. But Vinod Rai’s thoroughly researched book makes me now believe that whatever Singh might do, history will not be kind to him, his hopes notwithstanding.
The article appeared originally on www.Firstpost.com on Sep 15, 2014

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

Why Pritish Nandy is thoroughly wrong about the IPL

Pritish_NandyVivek Kaul
Pritish Nandy has a major grouse against those who seem to be spending a lot of time in unearthing the rot that has set into the Indian Premier League (IPL). Or so he points out in a blog titled Three idiots and a scam that won’t die.
He feels that this attention to the cricket’s biggest money spinner is undue and is taking away attention from other important issues that plague the country. He also feels that at the end of the day, it doesn’t really matter because Indians will still watch cricket, match fixing or not.
As he writes “
The day news channels were chasing Gurunath Meiyappan all the way from Kodaikanal to Madurai to Mumbai to the Crime Branch at midnight, millions were happily sitting in front of their TVs watching Mumbai Indians battling Rajasthan Royals at the Eden Gardens, proving yet again that there are two Indias with their own sets of concerns and priorities. I confess I was among those watching the game, rooting for Rahul Dravid whose team lost with a ball to spare.” 
This is a rather specious argument to make. A lot of people watched the match Nandy is talking about (including this writer). And among those who watched a significant portion must have been rooting for Rahul Dravid and Rajasthan Royals(including this writer). Now that does not mean that people are not bothered about the rot that has set into the IPL and wouldn’t want the dirt to come out. In fact, I can make a similar generalisation and say that a lot of people that I know stopped watching IPL after the spot fixing allegations came out. Also, people were interested in the match to see how Dravid and Rajasthan Royals perform after three of their cricketers were arrested for spot fixing. Truth, as is always the case, is mutli-layered.
Nandy feels that N Srinivasan should be allowed to continue as the President of the the Board for Control of Cricket in India (BCCI). Srinivasan is also the Vice Chairman of India Cements, the company which owns Chennai Super Kings (CSK), the best performing team in the IPL. The logic that Nandy offers is that “
a father-in-law is the last person to know what his son-in-law is up to. Allowing him to stay in his holiday home in Kodaikanal is not the same as endorsing his petty vices or (as yet unsubstantiated) attempts to fix IPL matches.” That is a fair point when viewed in isolation.
But how does Nandy explain the zeal with which Srinivasan has gone about disassociating himself and CSK from his son in law Gurunath Meiyappan? The people of this country have even been told that Meiyappan was just an enthusiastic supporter of CSK and nothing more. This despite the fact that there is a lot of evidence in the public domain to the contrary. Gurunath Meiyappan’s Twitter account clearly said he was the Team Principal of the CSK. So did his visiting cards.
As the old adage goes 
Caesar’s wife should be above suspicion which is clearly not the case here. At least till the various investigations into spot fixing are over, Srinivasan should stay away from the BCCI. And anyway there is a huge conflict of interest with Srinivasan being the BCCI president as well as the Vice Chairman of the company which owns CSK.
As the India Today points out “Srinivasan’s team (CSK) is under the jurisdiction of the tournament’s governing council, which in turn is under his own jurisdiction as the board’s all powerful boss.”
Nandy gives further reasons in support of Srinivasan and calls for the status quo to be maintained. As he writes “
But I really think we are all playing into the hands of those who have much more to hide than these dolts. Srinivasan’s enemies (and heaven knows, he has far too many of them) are having a field day. But ask yourself, do you really care whether he heads the BCCI or Sharad Pawar. Or Rajiv Shukla.”
This is a statement which has fallen victim to the fallacy of relevance “two wrongs make a right”. What Nandy is basically saying here is that I know Srinivisan is the wrong man for the job, but then so are Sharad Pawar and Rajeev Shukla, and given that Srinivasan should continue. But since when have two wrongs started to make a right?
Nandy also rues the fact that so much attention has been given to the spot fixing in IPL that the retirement of Vinod Rai, India’s bravest Comptroller and Auditor General has gone unnoticed. As he writes “
What bothers me is the carpet bombing scam coverage that ensured there were no goodbyes for the man who with evangelical zeal exposed the sleazy underbelly of Indian politics over the past 5 years, and did his best to set it right. Worse, there was no debate over who his successor ought to be. So the Government sneaked in its own nominee, clearly to undo some of the outstanding work Vinod Rai, India’s bravest Comptroller and Auditor General did in his own low key style.”
In case Nandy does read India’s largest selling English newspaper, The Times of India (Nandy’s blog is published on the newspaper’s website) he would have realised that on May 20, 2013, a full page interview with Rai was published. Now when was the last time you saw a mainstream newspaper carry a full page interview with a retiring bureaucrat? Forget that, when was the last time you saw a mainstream newspaper carry a full page interview with a politician?
Rai’s retirement was well covered by other newspapers as well. Hence, holding IPL responsible for Vinod Rai not getting a proper send off from the media doesn’t really hold. And more than that the media played a huge role in publicising a lot of what was written in the CAG reports on the various scam. Rai admitted to as much in the interview when he said “
The other factor that worked in our favour was you – the media, the 24×7 channels. Media has become so alert and it knows what needs to be highlighted. From our report, the media picked up only substantial issues.”
Nandy feels that all the attention that IPL has drawn is putting other issues on the backburner. “
Several other crucial issues that were being debated in the public space, like China’s incursions in Ladakh, the Vadera land deals, Muslim youth arrested and held for years on trumped up terrorist charges and now being released and, above all, the Supreme Court demanding the freeing of the CBI from the Government’s unholy clutches are now on the backburner. Even the Ranbaxy issue, where intrepid whistle blower Dinesh Thakur exposed the grave misdemeanours of one of India’s leading pharma companies and the dangers implicit in those for millions of us who buy its products, have been largely ignore,” he writes.
Let’s take the Ranbaxy issue here first. The company has to pay a fine of $500 million for selling adulterated drugs in the United States. This is big news, which was covered on the front pages of most English newspapers. But is this piece of news bigger than spot fixing in the IPL? The answer is no, simply because more readers would want to read about spot fixing than Ranbaxy. And a newspaper has to cater to that basic need.
This will happen anywhere in the world. The readability of any piece of news is likely to decide how much it is played up in comparison to other news. Let me give an example here to elaborate. Lets say baseball or basketball in the United States faces fixing allegations. At the same time some big drug company (lets say Pfizer) is fined for selling adulterated drugs. Which piece of news is going to get more coverage in general American newspapers? Of course the fixing scandal. A business newspaper on the other hand may concentrate more on the drug company. Most Indian business newspapers have covered the Ranbaxy story in great detail.
Also, if any newspaper were to concentrate more on the Ranbaxy issue and not on spot fixing in the IPL, it would lose readers, given that other newspapers wouldn’t be doing the same. Nandy having been an editor in the past, should surely understand this rather basic point.
As far as the other issues like freeing the CBI from clutches of the government is concerned, a lot has been written by newspapers, magazines and websites. And as and when some new information comes out they will surely get back to it.
Nandy concludes his piece by saying “
Frankly, my dear I don’t give a damn.” There are number of reasons that the spot fixing issue needs to be sorted out through and through. In the year 2000, a certain Mohammed Azharuddin was accused of match fixing. A lot of evidence was put forward. But ultimately other than a life ban nothing really happened. Azharuddin is now a Congress MP. Another accused Ajay Jadeja, is now a cricket expert on television. It is important that those responsible for the spot fixing in IPL be punished enough so as to ensure that they don’t come back to public life again.
India is a country starved of heroes. Our politicians are corrupt. Our bureaucrats are corrupt. And our businessmen are corrupt. Its the cricketers who are our roles models. And if these role models also turn out to be corrupt, who will we look up to? Given this, the mess in the IPL needs to be sorted out.
Let me conclude with the oft used cliché. C
ricket is not just a sport in this country, it’s a religion. And when you mess around with religion, people are bound to be angry.
The article originally appeared on www.firstpost.com on May 30,2013
(Vivek Kaul is a writer. He tweets @kaul_vivek) 
 

Why Manish Tewari's zero loss theory doesn't hold much ground

Manish-Tewari
Vivek Kaul 
If you keep repeating something people might finally start believing you, one day, someday.
Or so seems to go the logic in the Congress Party.
The Party has gone on and on about how the loss numbers regarding the various scams put out by the Comptroller and Auditor General (CAG) of India are largely fictional.
This effort has been led by P Chidambaram, Kapil Sibal and Digvijay Singh upto this point. They have questioned the Rs 1.76 lakh crore loss estimated in the 2G scam and the Rs 1.86 lakh crore estimated in the coalgate scam. They have tried to tell the nation that there has been no loss. And the numbers put out by CAG are largely fictional.
Digvijay Singh, the senior most General Secretary of the Party has even alleged that Vinod Rai,
the outgoing CAG, has political ambitions and that’s why he been trying to shame the government.
The latest missive in this direction has come from Manish Tewari, the information and broadcasting minister, and one of the chief trouble shooters of the Congress Party. He has remarked that “We’ve seen this great debate around certain hugely exaggerated and mythical numbers which have been thrown in public debate by certain very responsible institutions and functionaries… I think when institutions start indulging in fiction writing that is the greatest disservice that can possibly be done to an issue.”
What caused this outburst was
an interview that the outgoing CAG Rai gave to The Times of India. In this interview he was asked “what was his reaction when Kapil Sibal came with the zero loss theory?” “I felt sorry for them. I have never said this before, but I actually felt sorry for them,” said Rai. In the same interview Rai denied having any political ambitions whatsoever. “Whenever this question has been put to me, I have neither said ‘yes’ nor ‘no’. If I say I will not join, you will not believe me. If I say I will join, you will say “bola tha na“. But I am making it clear today. I have been apolitical all my life. Now, in the 65-years plus age why should I change?” said Rai.
It is important to clarify here that estimates made CAG on the losses are not mythical at all, as Tewari and others of his ilk would like us to believe. Lets try and understand this in case of what is now known as the Coalgate scam, by starting at the very beginning.
The Coal Mines(Nationalisation) Act was amended with effect from June 9, 1993. This allowed the government to give away coal blocks for free both to private sector as well as public sector companies. 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 anytime 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.”
Hence, to encourage more production of coal, the Coal Mines Act was amended with the view of helping at least those companies which used coal as a raw material. As the Economic Survey pointed out “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.” Using this change in policy the government of India gave away 195 coal blocks for free between 1993 and 2011. What is interesting nonetheless is that prior to 2004,only 39 coal blocks were given away free to public sectors as well as private sector companies. The remaining blocks have been given away since 2004. The Congress led UPA government has been in power since May 22, 2004.
So this shows clearly that around 80% of the coal blocks were given away for free only after the Congress Party led government came to power. What queers the pitch further is the fact that most of these blocks were given away during the period between 2006 and 2009 when the Prime Minister Manmohan Singh, also happened to the coal minister.
When we measure the coal blocks given away for free in terms of their geological reserves, the results get skewed further. The total geological reserves given away for free between 1993 and 2011 was 44,802.9 million tonnes. Of this nearly 41,235.9 million tonnes was given away between 2004 and 2011. As pointed out earlier, for most of this period (except for a period of around 5 months in 2004) the Congress led UPA government has been in power. During the period 1993-96, when the Congress government led by PV Narsimha Rao was in power, nine coal blocks with geological reserves of 917.7 million tonnes were given away for free. Hence, the Congress Party was directly involved in giving away 42,153.6 million tonnes of coal, or around 94% of the total geological reserves.
So Coalgate has largely been a Congress scam. The CAG in its report tried to put a number to the losses on account of the government giving away these blocks for free. There were a number of assumptions made while calculating these losses. First and foremost blocks given to government companies for free were not taken into consideration. And secondly, only open cast mines were taken into account while calculating losses, underground mines were ignored. If these mines were taken into account the loss number would have been greater than Rs 1.86 lakh crore.
The extractable reserves from the coal blocks considered for the calculation came to be at 6282.5million 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.
So 6282.5 million tonnes was the amount of coal that was given away for free. This coal could have been sold at a certain price. Using the prices at which CIL, which produces most of India’s coal, sold coal, CAG arrived at an average price of Rs 1,028.42 per tonne of coal.
There is a certain cost in producing this coal. The average cost of production was calculated to be at Rs 583.01 per tonne using CIL data. Over and above this there was a financing cost of Rs 150 per tonne that was assumed. This meant a profit of Rs Rs 295.41 per tonne of coal (Rs 1,028.42 – Rs 583.01 – Rs 150) had been let go off. Hence the government had lost Rs 295.41 for every tonne of coal that it gave away for free. The total losses were thus estimated to be at Rs 1,85,591.33 crore (Rs 295.41 x 6,282.5 million tonnes).
This loss figure comes with a disclaimer from CAG. “A part of this financial gain could have been tapped by the government by taking timely decision on competitive bidding for allocation of coal blocks,” the CAG report points out.
One criticism of this calculation has been that CAG did not take time value of money into account. All the extractable reserves of the mines considered couldn’t have been mined at once. They would be mined over a period of time. So that should have been taken into account and a present value of the losses should have been calculated. This point is raised by the CAG in its report as well. As the report points out “total extractable reserve of a coal block could be extracted over the lifetime of a block as per its mining plan. In the absence of future year wise quantity of coal extracted, sale price, cost price, financing cost etc pertaining to a coal block over its lifetime, audit has taken the currently available audited figures of CIL as reference values.”
But there are other points which clearly prove that CAG has been conservative in its calculations, like any good auditor would. While calculating losses on account of giving away coal blocks for free the CAG took into account the price at which CIL sells coal directly to companies it has an agreement with. This is the lowest price in the market. The price that CIL auctions through the e-auction route is higher. As the CAG points out in its report on an ultra mega power projects, the average price of coal sold by CIL through e-auctions in 2010-2011 was Rs 1,782 per tonne. If CAG had taken this price instead of the CIL price, then profit per tonne of coal would have stood at Rs 1,050 (Rs 1,782-Rs 583.01- Rs 150). The losses would have then stood at Rs 6.6 lakh crore.
If the price of imported coal would have been taken into account, losses would have been even higher. The average price of imported coal in November 2009 was Rs 2,874 per tonne (calculated by the CAG based on NTPC data).
If CAG had taken this price, the profit per tonne would have been Rs 2,142 (Rs 2,874 – Rs 583.01 – Rs 150) and the losses would have been Rs 13.5 lakh crore. The CAG did not take into account these prices. It took into account the lowest price of Rs 1,028.42 per tonne, which was the average Coal India price, like a conservative auditor would.
So here is my humble request to Congress leaders like Manish Tewari who have been saying that the various CAG reports have been “indulging in fiction”. Please read these reports. They are documents which have been written with great care and thorough research. The Congress Party may not be agree with the losses for obvious reasons but it cannot dismiss them totally. They can also question the methodology and the quantum of the loss as well. But saying that there has been no loss, makes them look a tad stupid in the eyes of urban Indians, who are the ones majorly concerned with such issues.
In fact Vinod Rai in the interview summarised the situation very well when he said “in my report I have said that there has been loss and that cannot be denied. The quantum of loss can be debated. I told them your own agency, CBI, has said there was a loss of Rs 30,000 crore.”
Now only if Manish Tewari wasn’t so much in love with his voice…
The article originally appeared on www.firstpost.com on May 25,2013
(Vivek Kaul is a writer. He tweets @kaul_vivek) 

Mute Manmohan watches as “Coalgate” engulfs Congress from all sides


Vivek Kaul

The Great Fire of Rome started on July 19, 64AD, and burnt for six days. There are several varying accounts of it in history. One of the accounts suggests that Nero the king of Rome watched the fire destroy the city, from one of Rome’s many hills, while singing and playing the lyre, a stringed musical instrument.
India these days has its own Nero, Prime Minister Manmohan Singh. As the Congress led United Progressive Alliance (UPA) government gets engulfed in the coal-gate scam, Manmohan Singh has largely been a silent spectator watching from the stands and seeing his government being engulfed by the coal fire.
And this is not the first time. Manmohan Singh has largely been a bystander at the helm of what is turning out to be probably the most corrupt government that India has ever seen. As TN Ninan, one of the most respected business editors in the country, recently wrote in the Business Standard “Corruption silenced telecom, it froze orders for defence equipment, it flared up over gas, and now it might black out the mining and power sectors. Manmohan Singh’s fatal flaw — his willingness to tolerate corruption all around him while keeping his own hands clean — has led us into a cul de sac , with the country able to neither tolerate rampant corruption nor root it out.”
Manmohan Singh like Nero before him has been watching as institutionalised corruption burns India. The biggest of these scams has been termed “coal-gate” by the Indian media. The Comptroller and the Auditor General (CAG) of India put the losses on account of this scam at a whopping Rs 1,86,000 crore.
The background
The Planning Commission of India had estimated that the raw demand for coal in the year 2011-2012 will be at around 696 million tonnes. Of this 554 million tonnes was expected to be produced in the country by Coal India, Singareni Collieries and a host of other small companies. The remaining was expected to be met through imports.
Production of coal in 2011-2012 in million tonnes
Company Target Achievement
Coal India 447 436
Singareni Collieries 51 52
Others 56 52
Total 554 540
Source: Provisional Coal Statistics 2011-2012, Coal Controller Organisation, Ministry of Coal
As can be seen from the table above the actual production of coal at 540 million tonnes was a little less than the target. This was an increase of 1.3% over the previous year. Also since the actual demand for coal was significantly higher than the actual production, India had to import a lot of coal during the course of the year. Estimates made by the Coal Controller Organisation suggest that the country imported around 99million tonnes of coal in 2011-2012. The Planning Commission had expected around 137million tonnes to be imported in the year. So the Coal Controller’s estimate for coal imports is significantly lower than that. Also the increasing iport of coal is not a one off trend.
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
As the above table suggests India has been importing more and more coal since the turn of the century. A major reason for this has been the inability of the government owned Coal India, which is the largest producer of coal in the country, to increase production at a faster rate. Between 2004-2005 and 2011-2012 the company managed to increase its production by just 65million tonnes to 436million tonnes, an absolute increase of around 17.5%. The import of coal went up by a massive 241% to around 99 million tonnes, during the same period.
In fact, to its credit, the government of India realised the inability of the country to produce enough coal in the early 1990s. The Coal Mines (Nationalisation) Act 1973 was amended with effect from June 9, 1973, to allow the government to give away coal blocks for free for captive use of coal. 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 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 at a faster rate 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”.
The last few years
The idea of giving away coal blocks for free was to encourage investment in coal by companies which were dependant on coal as an input. This included companies producing power, iron and steel and cement. Since the government couldn’t produce enough coal to meet their needs, the companies would be allowed to produce coal to meet their own needs by giving them coal blocks for free.
While the policy to give away coal blocks has been in place since 1993, it didn’t really take off till the mid 2000s. Between 1993 and 2003, the government gave away 39 coal blocks free to private companies as well as government owned companies. 20 out of the 39 blocks were allocated in 2003.
In the year 2004, the government gave away four blocks. But these were big blocks with the total geological reserves of coal amounting to 2143.5million tonnes. After this the floodgates really opened up and between 2005 and 2009, 149 coal blocks were given away for free.
Year Number of mines Geological Reserves (in million tonns)
2004 4 2143.5
2005 21 3174.3
2006 47 14424.8
2007 45 10585.8
2008 21 3423.5
2009 15 6549.2
153 40301.1
Source: Provisional Coal Statistics 2011-2012, Coal Control Organisation, Ministry of Coal
The above table makes for a very interesting reading. Between 2004 and 2009, the government of India gave away 153 coal blocks with geological reserves amounting to a little more than 40billion tonnes for free. Estimates made by the Geological Survey of India suggest that India has 293.5billon tonnes of coal reserves. This implies that the government gave away 13.7% of India’s coal reserves for free in a period of just five years.
The Congress led United Progressive Alliance was in power for most of this period with Manmohan Singh having been sworn in as the Prime Minister in May 2004. Interestingly, things reached their peak between 2006 and 2009, when the Prime Minister was also the Minister for Coal. During this period 128 coal blocks with geological reserves amounting to around 35billion tonnes were given away for free. 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.
The CAG and the losses
As is clearly explained above the Manmohan Singh led UPA government gave away around 14% of nation’s coal reserves away for free. Nevertheless, several senior leaders of the Congress party have told the nation that there have been no losses on account of the coal blocks being given away for free, primarily because very little coal was being produced from these blocks.
P Chidamabaram, the finance minister recently said “If coal is not mined, where is the loss? The loss will only occur if coal is sold at a certain price or undervalued.” Digvijaya Singh, a senior Congress leader targeted Vinod Rai, the Comptroller and Auditor General. Singh told The Indian Express that “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.”
This is sheer nonsense to say the least and anyone who understands how CAG arrived at the loss number of Rs 1,86,000 crore wouldn’t say so.
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.
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.
Also, 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.
The government could have sold this coal 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.
Chidambaram and Singh were 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.
What are the problems with the CAG’s loss calculation?
The problem with CAG’s loss calculation is that it doesn’t take into account the time value of money. The government wouldn’t have been able to sell all the coal all at once. It would have only been able to do so over a period of time. The CAG doesn’t take this into account. Ideally, it should have assumed that the government earns this revenue over a certain number of years and then discounted those revenues to arrive at a present value for the losses.
This goes against the government. But there are several assumptions that favour the government. The coal blocks given away free to government companies aren’t taken into account. 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 the profit earned from such transactions have been recognised. 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 recognised as revenue in the annual financial statement. So when revenues for transactions between two arms of the government are recognised so should losses. Around half of the coal blocks were given to government owned companies.
Also, the price at which Coal India sells coal to companies it has an agreement with, is the lowest in the market. It is not linked to the international price of coal. The price of coal that is auctioned by Coal India is much higher than its normal price. As the CAG points out in its report on the ultra mega power project, the average price of coal sold by Coal India through e-auction in 2010-2011 was Rs 1782 per tonne. The average price of imported coal in November 2009 was Rs 2874 per tonne (calculated by the CAG based on NTPC data). The CAG did not take into account these prices. It took into account the lowest price of Rs 1028.42 per tonne, which was the average Coal India price.
Let’s run some numbers to try and understand what kind of losses CAG could have come up with if it wanted to. At a price of Rs 1,782, the profit per tonne would have been Rs 1050 (Rs 1782-Rs 583.01- Rs 150). If this number had been used the losses would have amounted to Rs6.6lakh crore.
At a price of Rs 2874 per tonne, the profit per tonne would have been Rs 2142(Rs 2874 – Rs 583.01 – Rs 150). If this number had been used the losses would have been Rs 13.5lakh crore. This number is a little more than the Rs 13.18 lakh crore expenditure that the government of India incurred in 2011-2012.
So there are weaknesses in the CAG’s calculation of the losses on account of coal blocks being given away free. But these weaknesses work in both the directions. The bottomline though is that the country has suffered a big loss, though the quantum of the loss is debatable.
To conclude
News reports suggest that several Congress politicians have benefitted from the coal blocks being given away for free. The companies which got coal blocks haven’t been able to produce coal. The government hasn’t been able to invoke the bank guarantees of the companies for the delay in producing coal. This is because of a flaw in the allocation letters. As the Business Standard reports “There is a technical flaw in the format of the allocation letters. As per the letters, the government can invoke the bank guarantee clause only in cases of less production, and not nil production.” Some companies have started selling power in the open market. This power is being produced from the coal they mined out of the coal blocks they got free from the government.
The situation has all the facets of turning into a big mess like the previous scams under the Congress led UPA regime. And like the previous scams, it is likely to be swept under the carpet as well. Despite all this, the Prime Minister Manmohan Singh will continue to be a mute spectator to all this, keeping the chair warm till Rahul Gandhi is ready to take over. I would be glad to be proven otherwise.
(The article originally appeared in The Seasonal Magazine on September 12,2012. http://www.seasonalmagazine.com/2012/09/mute-manmohan-watches-as-coalgate.html)
(Vivek Kaul is a writer and can be reached at [email protected])

CAG was over-conservative in its Rs 1,86,000 cr loss number


Vivek Kaul

The Congress party seems to be hell bent on discrediting Vinod Rai, the Comptroller and Auditor General(CAG) of India, who has put the estimate of the losses on account of coal-gate at Rs 1.86 lakh crore.
The latest Congress politician to join the “pull Rai down” bandwagon is Digvijaya Singh.
Singh told The Indian Express that “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.”
Let’s try and understand why what Singh said is nonsense of the highest order and anyone who has read the CAG report wouldn’t say anything that was as remarkably stupid as this. But before I do that let me just summarise the coalgate issue first.
Between 1993 and 2011, the government of India gave away 206 coal blocks for free to government and private sector companies. The idea being that Coal India Ltd wasn’t producing enough coal to meet the growing energy needs of the nation. So free coal blocks were given away so that other companies could produce coal to meet their own coal needs.
Of these blocks given away for free, 165 blocks were given away free between 2004 and 2011. The Congress led United Progressive Alliance(UPA) has been in power since May 2004. Hence, 80% of the coal blocks have been given away for free during the reign of the Congress led UPA government.
This explains to a large extent why the Congress leaders are trying to discredit the CAG. Before Digvijaya Singh, the Prime Minister Manmohan Singh broke his silence for once, and said that the CAG report could be questioned on a number of technical points. The finance minister P Chidambaram said there had been no losses because of free coal blocks allocations and then denied making the statement a little later.
The CAG report on the coalgate scam explains in great detail the method they have used to arrive at a loss figure of Rs 1.86 lakh crore. Hence Singh’s question “how has he computed these figures?” is sheer rhetoric and nothing else.
As is the case with any estimate the CAG made a number of assumptions (for those who have a problem with this, even the government’s annual budget is an estimate which is replaced by a revised estimate a year later, and the actual number two years later). The CAG started with the assumption that the coal mined out of the coal blocks has been given away for free. This coal could be sold at a certain price. Since the government gave away the blocks for free, it let go of that opportunity. And this loss to the nation, the CAG has tried to quantify in terms of rupees, in its report.
There were other assumptions that were made as well. Only the coal blocks given out to private companies were taken into account while calculating losses. Blocks given to government companies were ignored. Personally, I would have liked CAG to take the government companies into account as well while calculating the losses, because a loss is a loss at the end of the day. Also, transactions happen between various sections of the government all the time and the money earned on account of these transactions is taken into account. So should the losses. Out of the 165 blocks allocated since 2004, 83, or around half were allocated to government owned companies.
The amount of coal in a block is referred to as the geological reserve. The portion that can be mined is referred to as the extractable reserve. The CAG calculated extractable reserves of the private coal blocks to be around 6282.5million tonnes. This is the amount of coal that could have been sold.
The second part of the calculation was arriving at a price at which this coal could have been sold. For this the CAG looked at the prices at which Coal India, which produces 80% of India’s coal, sells its various grades of coal. Using these prices it arrived at an average price of Rs 1028.42 per tonne of coal. Obviously there is a cost involved in producing this coal as well. The average cost of production came to Rs 583.01 per tonne. Other than this a financing cost of Rs 150 per tonne was also taken into account.
This meant a profit of Rs 295.41 per tonne of coal (Rs 1028.42 – Rs 583.01 – Rs 150). Hence the government had lost Rs295.41 for every tonne of coal that it gave away for free. Hence, the losses were estimated to be at Rs 1,85,591.33 crore (Rs 295.41 x 6282.5 million tonnes).
This brings me back to Digvijaya Singh. “He has been giving notional and fictional figures that have no relevance to facts,” a part of his statement said. The numbers are not fictional at all. They are backed by hardcore data. If you don’t use the numbers of Coal India, a company which produces 80% of the coal in India, whose numbers do you use? That is a question that Singh should answer.
Also, the price at which Coal India sells coal to companies it has an agreement with, is the lowest in the market. It is not linked to the international price of coal. The price of coal that is auctioned by Coal India is much higher than its normal price. As the CAG points out in its report on the ultra mega power project, the average price of coal sold by Coal India through e-auction in 2010-2011 was Rs 1782 per tonne. The average price of imported coal in November 2009 was Rs 2874 per tonne (calculated by the CAG based on NTPC data). The CAG did not take into account these prices. It took into account the lowest price of Rs 1028.42 per tonne, which was the average Coal India price.
Let’s run some numbers to try and understand what kind of losses CAG could have come up with if it wanted to. At a price of Rs 1,782, the profit per tonne would have been Rs 1050 (Rs 1782-Rs 583.01- Rs 150). If this number had been used the losses would have amounted to Rs6.6lakh crore.
At a price of Rs 2874 per tonne, the profit per tonne would have been Rs 2142(Rs 2874 – Rs 583.01 – Rs 150). If this number had been used the losses would have been Rs 13.5lakh crore. This number is a little more than the Rs 13.18 lakh crore expenditure that the government of India incurred in 2011-2012.
Even a weighted average price of these three prices would have implied a loss of Rs 7.3lakh crore. And this when the coal blocks given to government companies haven’t been taken into account at all.
So the point is that the CAG like a good accountant has worked with very conservative estimates and come up with a loss of Rs1.86 lakh crore. It could have easily come up with substantially bigger numbers as I just showed.
Now coming to the final charge of Vinod Rai having political ambitions. “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),” said Singh. Well just because one former CAG joined politics does not mean that every other CAG will follow him.
Singh should well remember the old English adage: “one swallow does not a summer make”.
(The article originally appeared on www.firstpost.com on September 1,2012. http://www.firstpost.com/business/cag-was-over-conservative-in-its-rs-186000-cr-loss-number-439355.html)
(Vivek Kaul is a writer and can be reached at [email protected])