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)