The comptroller and auditor general has estimated that the government lost Rs 10.7 lakh crore by allotting coal blocks in 2004-09 instead of auctioning them. The government has contested the estimate as well as methodology of the CAG, and says allocations were normal practice for decades. The CAG has admitted that its estimate is very preliminary.
Some financial experts have accused the CAG of financial illiteracy, especially in estimating net present value. Besides, the CAG\’s tactic of estimating the cost of policies not followed is an endless exercise. Will he estimate the cost of Nehru-Indira socialism that kept India slow-growing for decades?
Whatever the CAG\’s final estimate of Coalgate, opposition parties will demand that Congress heads should roll. Yet if indeed there is a scam, opposition parties (above all the Left Front) are responsible too.
The Left Front has always opposed amendment of the Coal Mines Nationalisation Act, 1973, that banned private coal mining, save for captive purposes. UPA-1 wanted to amend this Act in 2004 to allow private mining-after which truly competitive auctions would have become feasible. But the LF prevented any amendment.
UPA-2 has taken over two years to devise an auction procedure, and can certainly be criticized for semi-paralysis. Suspicions of venality will persist. But this must not cloak the Left Front\’s role in sabotaging commercial mining and auctions.
Experts will have varying views of a mine\’s worth, depending on their future expectations of prices, technology and much else. Only open competitive bidding can determine what a block is actually worth.
Unfortunately, open competitive bidding is forbidden by the Act. Commercial mining specialists, who dominate mining the world over, are not allowed to bid for coal mines in India. Limiting the bidding to end users (like steel, cement and power plants) will definitely yield lower prices than open auctions in which all can participate. Some coal blocks are conveniently situated only for one or two end-users, who can therefore bid very low.
If the CAG is serious about estimating losses from faulty policies, he should first estimate the loss from nationalizing coal (which has resulted in India, with one-tenth of the world\’s coal reserves, becoming a massive importer of coal at sky-high prices because of public sector incompetence in coal production).
Second, he should estimate the loss from restricting bidding to end-users. That will show how much of the supposed scam should be pinned on the Left Front and other opponents.
Apart from maximizing government revenue, open auctions ensure fairness-anybody can bid, and a few cronies with political links cannot corner coal blocks. Hence auctions would be desirable even if coal prices were so low that no significant windfall accrued to the mine owners.
The BJP first moved legislation in the Rajya Sabha in 2000 to amend the Act, but did not have the guts to follow through. Then in 2004, UPA-1 was thwarted by the Left Front-on whom it depended for survival-from amending the Act. It then considered whether auctions could nevertheless be held, limited to end users. Progress on this was stalled, with some saying that allocations would be faster than auctions, and others saying that auctions would entail thorny legal issues and trade union opposition.
After UPA-2 came to power in 2009, there was somewhat faster movement. Possibly the CAG report influenced this. The minister for coal now says that auctions will begin in a few months for 54 coal blocks.
However, competition will remain unfairly limited to end users. The Investment Commission headed by Ratan Tata wanted mining to be opened up to all, including foreign investors. This has not happened.
Coal allocations are relics left over from the old licence-permit raj, which imposed controls in the holy name of socialism, and then used these to line the pockets of ruling parties, at the Centre and in states. Politicians made money from not only allotting coal blocks but arranging scarce coal supplies from Coal India.
Venality on the part of Congress and some regional parties could be one reason for the delay in moving to competitive auctions. Some crony capitalists were surely happy with the system of allocations rather than auctions, and also with the proposed limitation of bidding to end users. These cronies would have paid their political backers whatever was required for this. But they would not have paid the Left Front for limiting competition: that service was available to them free of charge, on ideological grounds alone.
To paraphrase an old sarcastic verse: \”You cannot bribe the upright communist/ Even if you\’re keen to./But seeing what the chap will do, unbribed /There is no need to.\”