Don’t cancel coal blocks, levy high royalties

Opposition parties want Manmohan Singh’s head for supposed corruption in 57 coal blocks that were allocated, not auctioned. The government is under pressure to cancel the allocations. That would be politically, legally and economically wrong.

Politically, it will look like a confession of crookedness. Neither the CAG nor anybody else has produced any evidence of kickbacks. That makes it very different from the 2G case.

The CAG estimated that 2G spectrum auctions might have fetched Rs 1.86 lakh crore. But that was a criticism of policy, not evidence of kickbacks. Former telecom minister Raja was indicted not for failure to auction spectrum but because he perverted the first-come first-served policy into a first-served then-come policy, favouring friends.

There is no such evidence in the coal block case. If the Congress cancels all coal allocations, as it has cancelled 2G spectrum, it will send voters the message that it is as guilty as Raja. That would be politically stupid.

It would be even more wrong on the grounds of justice or economic sense. The rule of law implies penalties only for the guilty, not for all allottees. Cancellations will be right only where there is evidence of kickbacks. Cancellations may also be justified where companies have sat on coal blocks without any effort to develop them. But not in other cases.

Some companies have raised thousands of crores in equity and loans to finance new projects for power, cement and steel, based on their allocations. India badly needs these projects. If you now kill these projects by cancelling their coal allocations, who will invest in future?

Ever since Independence, central and state governments have allocated lucrative permits of all sorts. In the heyday of socialism, industrial licences were gold mines. So were import licences and forex permits. Were these auctioned? Never. So, why focus only on coal since 2004? Why not on every allocation since Independence? Can these all be cancelled?

With economic liberalisation, some licences stand abolished. So, nobody pays kickbacks today for industrial and import licences, or foreign exchange. But humungous central and state government controls remain in natural resources. These controls, supposedly in the public interest, have been misused for private gain.

The most hilarious example of misuse relates to the scam ending the political career of Andhra Pradesh governor N D Tiwari. Photos of him cavorting with three naked prostitutes were made public by the madam of the brothel. Why did she expose him? Because Tiwari had promised her a mining licence but did not deliver. Her expose caused much merriment. Yet it is hardly a laughing matter that in India, even brothel-owners can aspire to be allocated mines.

The CAG report has focused only on coal, not other minerals. The Supreme Court has, with more consistency, called for auctioning all natural resources in future. Some exceptions will be necessary, for instance for water. But the Supreme Court has not called for cancelling existing allocations of natural resources. Nor does it want bidding limited to captive consumers—real competition implies that mining should be open to all. We must follow this approach for coal and other minerals.

The CAG is right in saying that the sharp rise in prices of all minerals — including coal — have bestowed windfalls on mine owners. But this applies to all minerals, to old as well as recent mineral allottees, and to both public and private sectors. The Tatas and Birlas have for decades been granted captive mines for coal, iron ore and bauxite, and have reaped immense gains from the rise in mineral prices. Why call windfalls for recent allottees a scam, while ignoring far bigger windfalls of older mines of the Tatas, Birlas, government corporations and others?

A fair method of clawing back part of the windfall will be to levy stiff additional royalties on all minerals. This will be within the government’s contractual rights, whereas cancellations would be breaches of contract. New Delhi is reluctant to raise royalties because these accrue entirely to state governments, not the Centre. This is petty politicking, not economic sense.

The CAG estimates coal profitability at Rs 295/tonne, and says part of this is a windfall. An increase of Rs 100/tonne in coal royalty, phased in over several years, would yield large revenues. It would be non-discriminatory and hence fair to all, across old and new allottees, across public and private sectors. Over the lifetime of all mines, this would provide far more revenue than the CAG’s Rs 1.86 lakh crore estimate of the possible auction value of the 57 blocks. That is a better way forward than arbitrary cancellations, unrelated to wrong-doing.

What do you think?