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Wednesday, 16 October 2013 00:00
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KM Birla getting a PSU coal field is hardly an issue

 

With Kumar Mangalam Birla also getting embroiled in the Coalgate scam, joining a long list of worthies that includes the likes of Naveen Jindal in a total of 14 FIRs filed so far—many more are expected since several top industrial houses have been allocated coal blocks—it is time to take stock of what happened and, more important, the way to ensure this doesn’t happen again. While the main charge levelled against Birla is that he managed to get his company allocated a block ‘reserved’ for a PSU, that in itself is not so significant—imagine an FIR being filed against Jet Airways for getting landing rights or bilaterals ‘reserved’ for Air India in the manner many from the CAG to various politicians think is the natural order. In today’s day and age, when private firms are contributing far more to taxes, to output, to jobs creation and access to services—from telephone connections to airline travel—than public sector ones, de-reserving something kept for a PSU is probably a good thing. The bigger problem, and this is precisely what happened in the 2G scam, is that the licences were not auctioned. So whether it was a Birla or a Jindal, there was no way of ensuring other firms got an equal chance to get to the same coal block. Properly designed auctions eliminate the chance of favouritism and, for that reason alone, should be the preferred way to dispose off any public asset.

Indeed, the reason why Coalgate has continued to fester is that the government response to it has been more than sluggish. While it has been 18 months since the CAG’s draft report came out—the one that, very incorrectly, put the value of the scam at R10.7 lakh crore and later revised it to a sixth—the government gave the impression it was reluctant to act. So, in the case of companies that had got the captive coal blocks for their power plants, the government didn’t rush to capture the unfair advantage by ensuring the coal could be used only if the power sold was done so by way of competitive bidding.

In the ongoing case of the sale of Hindustan Zinc, similarly, while doubts have been raised as to whether the method for calculating the value of the then PSU was correct, the reason why this is not strictly relevant is that after the valuation was done, there was an auction for selling the government’s stake. Indeed, Hindustan Zinc is a good example of why reservation for PSUs is a bad idea—since the company was sold, its revenues have risen 10 times, profits 101 times, and market capitalisation 78 times, taking the value of the government’s stock in the firm from R536 crore to R16,500 crore in the past 11 years even though its shareholding is down from 76% to under 30% now. Whatever the outcome of the coal FIRs, the larger question that needs to be answered is that if companies are not going to be able to access raw materials, be it coal or bauxite, how are they supposed to run their businesses and how is the country to grow.

 

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