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Law ministry twice advised for auction but coal ministry ignored: CAG-Sanjay Dutta & Pradeep Thakur
-The Times of India

Pointing out that the government extended windfall gains of Rs 1.86 lakh crore to private players by distributing coal blocks without bidding over years, the CAG has said, "A part of this financial gain could have accrued to the national exchequer by operationalizing the decision taken years earlier to introduce competitive bidding for allocation of coal blocks. Therefore, audit is of strong opinion that there is a need for strict regulatory and monitoring mechanism to ensure that benefit of cheaper coal is passed on to the consumers." 

In a report, which was tabled in Parliament on Friday, the auditor noted that the government had set a cut-off date of June 28, 2004, for distributing blocks through nomination but kept on awarding coal blocks through the screening committee route till 2009. The government could have introduced competitive bidding in 2006 through "administrative directive" as advised by the law ministry, the report said. In fact, while the CAG stopped short of asking for cancellation of allocations, it did ask for a review of the decisions. 

Politically, the latest volley of censures from the auditor will ensure that the focus on "corruption" in the allocation of natural resources during the two UPA regimes does not fade away. Buoyed by the three reports, the opposition demanded the PM's resignation saying that the auditor has validated its charge of crony capitalism with free rein to carpet baggers. 

The government, which had anticipated the onslaught, reacted by rejecting the charge and criticizing the national auditor who has been a source of intense political headache. 

Official sources said bidding could not be invited for blocks since doing so would have required amending the mining law, a lengthy process which could have proven counter-productive in view of the rising demand for coal for power generation and other industries. Further, they argued that the allocations were done based on recommendations of a screening committee that included representatives of states, including those ruled by the opposition. 

But the final CAG report has addressed the coal ministry's argument why the ministry could not switch to auction despite strong opinions from within as well as the law ministry since 2004: it would have held up release of coal for crucial consumers. The auditor pointed out that the law ministry had said government could introduce auctions by merely amending the existing administrative procedure and without having to legislate afresh. 

This opinion is significant as it addresses the concern that enacting a law would hold up distribution of coal. Obviously, CAG stressed, "Thus, competitive bidding could have been introduced in 2006 as per the advice of the law ministry." It also emphasized that the law ministry had left it for the coal ministry to decide which route to take — administrative or legislative — for holding auctions. 

The report also noted that the coal ministry did not stir even when the law secretary repeated the same advice in August 2006. 

Going into the sequence of how the ministry went on handing out blocks in spite of strong advice to the contrary, the auditor said the then coal secretary had noted in 2004, "Since there is substantial difference between the price of coal supplied by Coal India and coal produced by captive mining, there is windfall gain for the person who is allotted a captive block." The seniormost official of the ministry had argued for a more "transparent and objective process" like competitive bidding, but failed to goad the ministry into a rethink. "Despite such clear advice, coal ministry went ahead for allocation of coal blocks through screening committee for allocation of 38 coal blocks and continued with the process till 2009," the CAG said. 

Altogether, 75 mines with 15.35 billion tonnes of geological reserves of coal were given out to private companies, including 57 open cast mines. The report estimates 6.3 billion of the reserves in open cast mines as recoverable, assuming an extraction rate of 73% for open cast mines and 37% for mixed mines. This is good enough for generating over 50,000 mw for 25 years. 

CAG has taken the open cast mines alone for calculating the gains. It has first taken the difference between the average sale price of Rs 1,028.42 per tonne for all grades of coal mined from open cast mines by state-run Coal India Ltd and the average production cost of Rs 583 per tonne. Then it has made an allowance of Rs 150 per tonne towards financing cost in line with the coal ministry's suggestion. After adjustment of this allowance, the final benefit has been taken at Rs 295.41 per tonne for the extractable reserve. 

The final CAG report, however, is silent on one count: the final report does not argue against giving coal blocks to private cement, steel and power plants — existing or proposed.