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PM under fire, CAG does firefighting on coal report

BS Reporters  |  New Delhi 

A daylong drama over an alleged Rs 10.6 lakh-crore scam in coal allocation took a new twist on Thursday, with Comptroller and Auditor General (CAG) Vinod Rai coming to Prime Minister Manmohan Singh's rescue by playing down the findings of his own office.

A report published in The Times of India on Thursday quoted a CAG draft report on the ‘Performance Audit of Coal Block and Allocations’ as having found “undue benefit” extended to companies by allotting them 155 coal acreages without auction between 2004 and 2009.

Rai termed the draft audit report “very preliminary” and its leak as “exceedingly misleading and embarrassing” in a letter to the PM, an extract of which was released by the Prime Minister’s Office (PMO).

In a letter written to the PMO in the afternoon, the CAG dismissed the mind-boggling loss figure of Rs 10.6 lakh crore mentioned in the draft report. It cited a “change in thinking” in the auditor over how to compute loss to the exchequer.

Dramatic day...
11 am Opposition attacks govt, forcing adjournment of Lok Sabha and Rajya Sabha till noon; BJP demands CBI probe
Noon Lok Sabha Speaker Meira Kumar calls leaders of all major parties and govt appeals the House be allowed to function, assures debate; House resumes work later
1.30 pm PMO releases a para of CAG Vinod Rai’s letter to the PM, terming media reports of loss misleading; extract hints final report will be vastly different from leaked one
3 pm PMO tweets extracts from Rai’s letter, avoids making public CAG concern over leak
4 pm Coal Minister Sriprakash Jaiswal cancels press conference

Officials familiar with CAG working told Business Standard such changes usually happened only at the field level. “The final report and draft are not dramatically different, though there may be changes in the figures and language,” said one. The final report is likely to be placed in Parliament in the current session after the recess.

The auditor was likely to qualify the quoted figure as gains to the companies and not loss to the exchequer, said a CAG official. That line would be technically correct since the government does not get any revenue or profit share or even licence fee on blocks given to companies. The allotment was done through a linkage committee route. State governments earn a royalty on production, which rises if blocks have higher reserves. “Any subsidised allocation of a block also gets incorporated in the tariff calculation by the regulator. Therefore, it is not appropriate to call the revenue impact of these allocations loss to the exchequer,” said a senior analyst at an accounting and consultancy firm. The clarification by the apex auditor came as a reprieve to the UPA government, which was reeling under attack from the Opposition in Parliament.

Both Houses were adjourned in the morning and Opposition parties demanded a statement from the PM. Between 2004 and 2009, when these auctions occurred, the PM had twice headed the coal ministry. “The coal allotment scam is a major one. We demand a CBI probe monitored by a court,” BJP leader Prakash Javdekar said. Left parties attacked the government, with Sitaram Yechury questioning why the government was in a hurry to make allotments ahead of the passage of a law in 2009 to make auctioning of blocks compulsory.

The CAG, in a letter written to the PM, clarified the observations of his office were not final. “The details being brought out were observations that are under discussion at a very preliminary stage and do not even constitute our pre-final draft and, hence, are exceedingly misleading,” the CAG said in the letter, parts of which were quoted and tweeted by the PMO on Thursday afternoon. The letter also said, “Pursuant to the clarification provided by the ministry in conferences on February 9 and March 9, we have changed our thinking... It is not even our case that the unintended benefit to the allocatee is an equivalent loss to the exchequer.”

Coal mining is an exclusive domain of the public sector in India. To allow restricted private entry into coal mining and boost production, the government has been allocating coal blocks to companies for captive use. A total of 40 blocks were allocated between 1993 and 2004. The UPA government that came to power in 2004 found the process of allocation wanting in transparency and introduced changes, including due consultation with state governments and the ministries concerned.

To make the process further transparent, the UPA-II regime started discussions over a proposal to introduce bidding for all future allocations in 2009. Since then, not a single coal block has been allocated to any company. Only 28 of the 193 blocks allocated between 1993 and 2009 have started production. The coal ministry had last year cancelled 24 allocations for delays in development.

The current controversy stems from the allegation that a scarce natural resource was allocated to companies free of cost, causing loss to the exchequer. Coal minister Sri Prakash Jaiswal, however, argued on Thursday that attaching cost to a block would have jacked up prices of power, steel and cement.

Notably, no coal block has been allocated in Jaiswal’s regime since 2009. The fact that the PM himself was at the helm of affairs in the ministry for roughly two years between 2004 and 2007, when a majority of the blocks were allocated, added to the controversy. “The PM is not responsible. No scam has taken place. A baseless is being run,” Jaiswal said.

Companies listed in the report responded to the development by categorically denying any undue benefit. State-owned power generator NTPC Ltd, which allegedly gained over Rs 22,000 crore, said: “There is no way by which NTPC can make windfall profit out of the coal produced from these mines as under the CERC-regulated regime the cost of coal from these mines will be passed through in the power tariff.” A senior executive from a major private sector power company rejected CAG’s observations, calling them ridiculous. “How can anybody compare the selling price of Coal India with the production cost of captive producers? Also, the blocks given to us (captive block holders) were those CIL could not develop,” he said, asking not to be identified.

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First Published: Fri, March 23 2012. 00:49 IST