Don't waste a good scam Print
Saturday, 18 August 2012 00:00
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Use CAG report to drive through serious reforms

Three CAG reports on the same day blaming the government for causing a loss of R3.8 lakh crore to the exchequer (around R90,000 crore on an NPV basis), and the UPA has every reason to feel cornered. But more than that, it must see the CAG reports for their larger lesson, and that is precious natural resources cannot be given away for free, no matter what the pretext. In A Raja’s case, where the CAG put the loss at R1.76 lakh crore, the pretext was cheaper telephony but all that happened was that some of the Raja beneficiaries sold their shares at huge profits. Similarly, while cheaper power was the ostensible reason for the free captive coal blocks, this never happened.

The CAG’s reason for lowering the coalgate loss figure from R10.67 lakh crore in the draft version to R1.86 lakh crore is a complicated one, but the reasons are largely those pointed out by FE in “Powering the CAG scam” ( At that time, we pointed out, the CAG incorrectly assumed all the coal in the blocks could be extracted—this has been corrected and, in addition, the coal in underground mines has been excluded from the calculation as it is quite costly to extract. Similarly, coal blocks given to PSUs have been excluded from the calculation. One mistake the CAG continues with, however, is that it does not discount the figure even though the potential gains will accrue over the next 20 years.

But the real issue is not whether the loss is R10.67 lakh crore or R1.86 lakh crore or even R0.75 lakh crore (if you do the discounting the CAG doesn’t), considering even the last figure is a huge one. What’s important (see “The real coal scam”, is that even in 2004, the PM wanted auctions and the law allowed it, but nothing happened—as in the Raja case—despite this, and the matter got bounced around from one ministry to another, and within each ministry forever. Since the reason why the captive mines were allotted was the inefficiency of Coal India which couldn’t meet industry’s demand, the real lesson to be drawn is that private sector commercial mining must be allowed. If the Opposition parties object, they need to be reminded of their role since each Screening Committee that handed out the mines for free had representatives of the state governments as well. Indeed, in the Sasan case where the CAG estimates a R29,033 crore loss (R11,852 crore on NPV basis), it was the BJP chief minister who first asked for the coal diversion to be allowed.

Indeed, both Sasan and DIAL, where benefits to the private concessionaire are put at R88,337 crore (R4,187 crore on an NPV basis), are lessons for those who feel auctions are the panacea for everything. In Sasan, the CAG talks of large post-bid concessions and in DIAL the government went to sleep after the bidding. While the concessionaire had promised to share 46% of revenues with the government, it refused to part with the deposits it got for the 250 acres it was given for commercial development, on grounds these were liabilities! Effectively, this lowered the revenues the government was to get from the airport by around a fifth. If the government learned the right lesson, the CAG reports would have done their job. Sadly, the Presidential Reference on the 2G matter in the Supreme Court is about asserting the government’s unfettered right to block auctions in the future.