<p>There are both astonishing similarities between the current Coalgate scam and the recent 2G scam, and several big differences. Both were highlighted and caught national attention thanks to the Comptroller and Auditor General (CAG). In both cases, the figure that has caught people’s imagination is the huge loss (over Rs 1 lakh crore in both cases) that is assumed to be have been lost or gained, as the case may be. In both cases, private companies appear to have gained favour through malafide means. However, in the 2G case, the fact that the process of licensing had been subverted was far clearer — and it could also be pinned to the discretionary powers of one minister. In the coal allocation case, it is still far from clear whether the process was actually subverted, and if it was, then who was responsible for it. There is no way of knowing where the entire Coalgate scam is headed and whether the matter will — like the 2G allocation — end up in court and whether all allocations will be cancelled. As with every story, there are two sides to it. The CAG has presented his version in a 200-page report. <strong>Montek Singh Ahluwalia</strong>, the deputy chairman of the Planning Commission and a member of the Union Cabinet, presents his own viewpoint on the coal fiasco. Excerpts from a detailed interview with <strong>BW</strong><em><strong>’</strong></em><strong>s Anjuli Bhargava</strong>:</p><div> </div><div><strong>In the case of the coal block allotments, two separate issues are being raised. The first is on presumptive gain by companies that won in the allotment. The second is on how some extremely small and undeserving companies got allotments. The government has defended itself quite strongly on the issue of presumptive gain. But there is also a CBI investigation into some of the companies which were given coal blocks. How does the government justify this especially since these blocks were allotted at the time when the Prime Minister held the coal portfolio?</strong></div><div>As you say, the government has presented its case on the issue of “presumptive gain” and I won’t repeat it. The PM has pointed out that a number of the assumptions underlying the CAG’s estimate are questionable and the issues need to be gone into detail by the PAC. </div><div> </div><div>I would, however, like to point out that in the whole debate critics are projecting the entire so-called gain as a loss to the exchequer. The CAG did not call it a loss — only a gain to private parties. What he said was that if the blocks had been auctioned, a part of the gain would have come to the exchequer. However, the CAG report never tried to quantify this. So what we have is an estimate of gain to private parties, which needs to be subjected to expert scrutiny, and a statement that a part of the gain could have come to the exchequer through auctions. The opposition and the media have picked up the Rs 1.86 lakh gain number and are treating it as the loss. That is totally incorrect.<br /> </div><div>On the question of some companies being investigated I don’t know the details but it is always possible that there may be companies that misrepresented their eligibility, or used unfair means to influence a decision in their favour. This kind of malfeasance can never be ruled out and all we can do is investigate, which is what the CBI is doing. If malfeasance is found, action should be taken.</div><div> </div><div><strong>Could the government have avoided making these allocations which are now proving controversial?</strong></div><div>That is a very good question. The government had already decided to move to auctions but this took time. What option did they have in the meantime? Some people may argue that they should have given the blocks to Coal India as that would have avoided any gain to private parties. But the whole reason for having a policy of captive blocks was that Coal India was not able to meet their production targets from the mines they had. In fact, the CAG has noted that Coal India would not have met the target, so that was not an option. <br /> </div><div>The other option was not to allocate the blocks and live with less coal being produced. Some people have said that these blocks have not gone into production anyway, but that is because clearances take a long time. Many of these blocks will go into production even if it is later than originally planned. This means the allocation of captive blocks will yield more coal in the Twelfth Plan and the Thirteenth Plan. And the user companies would have also gone ahead and tied up downstream investments in power, fertilizer and other sectors. If the government had not allocated the blocks at all, we would not have had any alleged gain to private parties but we would have had less coal, less electricity, less GDP and lower revenues.<br /> </div><div>The government, therefore, continued with the system of allocating blocks which had been in place since 1993. The CAG’s real criticism is that the blocks should have been auctioned earlier by choosing to do so administratively without going to Parliament. There are two flaws in this argument. First in a Parliamentary democracy, even if the administrative option exists, but a government chooses the parliamentary route it is odd to criticise it for that. This is especially so since several coal bearing states had opposed the step on the grounds that it violated state rights. However, the real flaw in the CAG’s argument is that the administrative route was not feasible. This conclusion of the CAG is based on an initial view expressed by the Law Ministry, but within a couple of months, after thorough examination, the Law Ministry advised that the only way to do it properly was to amend the law. I am not a lawyer but I am persuaded that it could not have been done administratively because the Mines and Minerals Development and Regulation (MMDR) Act, 1957 specifically prescribes that the applicants for mining licenses must be recommended by the state governments after which the centre can accept or reject. We know the state governments did not want to give up their privilege.</div><div><br /><img width="405" vspace="8" hspace="8" height="218" align="middle" alt="" src="/image/image_gallery?uuid=3742e18c-bfd7-463b-ac9d-2c670b57ee5d&groupId=222852&t=1346492282841" /><br /> </div><div><strong>Should it really have taken as long as it did?</strong></div><div>I am not sure whether one can put a time frame on securing legislative action of this nature. Look at the number of policy related legislations that have been introduced in earlier Parliaments that have lapsed. I am sure there was a certain intent behind those legislations which could not fructify. Can that be construed as a policy lapse? In a democracy, the final word in policy-making is that of the Parliament and it is improper to impose time-limits on legislative action. Any judgement on delay then becomes a political question, not an audit matter.</div><div> </div><div>In this case, even when the Bill went to Parliament in 2008, the standing committee asked the ministry to consult the states again and the Bill was passed only in 2010. This bears out the view that the CAG underestimated parliamentary sensitivity on this issue.</div><div> </div><div><strong>Isn’t it wrong to allot coal blocks to sectors that follow market principles for selling their products — for example, steel companies? In the case of power firms, coal allotment could be justified because they were signing PPAs for subsidised power, but that does not apply to other industries such as steel and cement.</strong></div><div>That is a valid argument which is why the government wanted to switch to auctions. However, this is a case of an evolution in policy thinking. The entire MMDR Act was based on an acceptance of the principle of allocating mining rights by some sort of screening procedure. Iron ore mines are allotted to steel producers and coal mines to cement producers, who sell their product in the open markets. The shift to auction was the right move.</div><div> </div><div>break-page-break</div><div> </div><div><strong>What is the scope of a “performance audit” that CAG performs? Can it question policy per se or look at efficacy of implementation of policy decisions once policy is decided?</strong></div><div>Questioning policy decisions per se is dangerous as CAG becomes some kind of a super-policy tribunal which pronounces on the wisdom of policy decisions on narrow revenue considerations alone. It should be limited to whether policy decisions are implemented effectively.</div><div> </div><div><strong>If we are talking of auctioning coal blocks, will that mean a change in the status of Coal India? Will auctions throw open the blocks to all mining players, or just to the power sector?</strong></div><div>That is a very relevant question. In principle all coal blocks could be allocated by auction so that even Coal India has to bid along with others. I don’t think the Ministry of Coal is contemplating this. But we should think about what is the best course. I am not in favour of discriminatory behaviour. If auctions are right we should auction to everyone. Remember Coal India has minority private shareholding so it is not the same thing as the exchequer.</div><div> </div><div><strong>If the political opposition continues to grow, should the government consider cancelling the coal block allotments — given that only one company has started mining so far, this will not be too difficult.</strong></div><div>Cancellation because of political opposition is surely not the right thing to do. However, if there are legal infirmities in the allotments, or if the allottees have not fulfilled their obligations, or if they have misrepresented the position regarding their eligibility, then it is a different matter.</div><div> </div><div><strong>Will the coal issue go to the Supreme Court, as the 2G license issuance did?</strong></div><div>I have no way of knowing what will happen and I wouldn’t want to speculate. </div><div><br /><img width="441" vspace="8" hspace="8" height="464" align="middle" alt="" src="/image/image_gallery?uuid=5c8a7bd8-b77a-4bc9-87a4-5ad9f9295541&groupId=222852&t=1346492319086" /><br /> </div><div><strong>If the government decides to auction coal blocks, will it also press for foreign direct investment in the coal mining sector?</strong></div><div>FDI and auctions are unconnected. Coal India is a public sector company but it has foreign shareholders as a consequence of disinvestment. As far as captive blocks are concerned, as long as the company eligible for captive mining has FDI, that doesn’t prevent them from getting a captive block.</div><div> </div><div><strong>Were coal blocks allotted before the UPA came into power? And if yes, how should/will those allocations be dealt with?</strong></div><div>There were several blocks allotted before the UPA come to power. Allocations increased after the UPA because growth accelerated and people perceived that coal supplies from Coal India might not be easily available. Growth of the economy in terms of value is not a linear function. Therefore, as time passes, demand for energy and hence coal, would grow at an accelerated rate. People may also have anticipated that international coal prices were on an upward trend, in which case having a domestic mine would be profitable.</div><div> </div><div><strong>What is the stance of the Planning Commission on Coal India selling its coal at prices less than international market prices?</strong></div><div>This is an important issue. As a general rule, the Planning Commission takes the view that the price of an energy source, especially one where imports are taking place, must be aligned with its international trade parity price. The principle is well established as a policy objective in the case of petroleum products. We are not following it currently, but that’s a different matter. In the case of coal, the volume of traded coal is small compared to total consumption and international price of traded coal is much higher than the price of coal charged domestically in coal exporting countries. So one has to consider what is an appropriate benchmark. However, on balance I would say Indian coal is underpriced and we should evolve a strategy to bring it in line with a suitable level, keeping in mind global energy prices. However, we cannot at the same time ignore the larger picture of pricing in our energy sector as a whole, including power, petroleum, gas and coal, and therefore, parity pricing for coal cannot be an immediate goal.</div><div> </div><div><strong>Do you think the CAG has tended to overstate/ exaggerate the loss, as has happened with other sectors like telecommunications? Why/why not?</strong></div><div>As I said, I don’t want to criticise the CAG, but the fact is these are complex issues, going well beyond normal audit. Also, as I said earlier, the CAG has not actually called the Rs 1.86 lakh figure as a loss. The report has called it a gain and there are questions which could be asked whether the gain has been properly computed. Besides, if private investors invest they expect to make a gain so one should distinguish between a reasonable gain and a supernormal gain. Part of the gain will accrue as tax to the government but there is no calculation of gain net of tax. All that the CAG has said is that part of the gain would have accrued to the exchequer if the resource had been auctioned. That is true but no estimate of this amount has been given. And if auctioning was not immediately possible what should the government have done? I imagine the PAC will go into all these questions and we should wait to see the result.</div><div> </div><div><strong>What in your view is the best way out of the current crisis and is it wise/fair to cancel the entire allocation in view of the fact that power supply is so short as it is?</strong></div><div>The issue should be thoroughly debated in Parliament so that all concerns can be taken into account.</div><div> </div><div><strong>What penalty should Coal India pay those who it promised coal to and now it can’t meet their demands?</strong></div><div>That depends on the legal agreements they entered into. Coal India should certainly be held to their legal obligations, but it is possible the legal penalties are very low. In that case, Coal India has a moral obligation to meet expectations it had encouraged, but there can be no question of penalties. Since import of coal is inevitable, I believe the most important thing for Coal India to do is to meet its obligation by importing coal and pooling the price of imported and domestic coal to avoid very high price to those who are supplied imported coal. We must overcome the coal shortage and fuel uncertainty which will otherwise cripple the revival of the economy.</div><div> </div><div>(This story was published in Businessworld Issue Dated 10-09-2012)</div>
