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The government will strongly defend itself against claims of enormous losses likely to be made by the Comptroller and Auditor General (CAG) in three reports due to be tabled this week. The coal, civil aviation and power ministries are putting together what senior officials hope will be a robust defence, in contrast to the government's fumbling performance in response to an earlier CAG report on irregularities in the telecom sector in 2007-08.
In the first report, the subject of which is the allocation of captive mines, the Comptroller and Auditor General is believed to have concluded that private sector companies such as Tatas, the Naveen Jindal group, Bhushan Steel, Jaypee and Adani groups stood to gain over Rs 1,80,000 crore. The Tatas and Jindals are alleged to be the biggest beneficiaries in the national auditor's report.
In response, the government will point out that it had never treated allocation of coal mines as a "revenue-generating exercise". "The intent of the government was to involve the private sector to invest in identified infrastructure sectors," says a top government official, who is in charge of putting together the coal ministry's defence.
CAG-Govt Clash Over Benefit Numbers
"The intent of the government was to involve the private sector to invest in the interests of the country and its economy, and to this end, this developmental process was resorted to, with the basic objective of making more domestic coal available for specified end use," says the top government official, who is in charge of putting together the coal ministry's defence.
Moreover, the government is likely to tell Parliament that gains would accrue to the allottees only if they had a choice of either buying coal from Coal India, the government-owned monopoly, or producing coal from their captive blocks. But CIL, according to the official quoted earlier, was not in a position to cater to the total demand in the country. Hence, comparison with CIL's price to arrive at the so-called financial gain, as alleged by CAG, is purely notional, the official said.
The government's response to the CAG report, likely to be from Coal Minister Sri Prakash Jaiswal, may also stress the fact that increased output of coal by allocation of captive mines was over and above the maximum that could be made available through CIL, and that demand from key infrastructure sectors such as steel, power and cement could not be met by the PSU alone.
If coal blocks were not allotted to the private sector, it would have resulted in higher imports (leading to outflow of foreign exchange) and delayed large investments in critical sectors, the government is likely to argue.
CAG's computation of future benefits for the private sector takes into account a 30-year period. The crux of CAG's argument is that some of these future gains could have been clawed back by the exchequer if the mines had been auctioned. But the Centre is likely to criticise the calculation of alleged financial gains on the ground that CAG's arithmetic is flawed.
"The financial gains have been computed on the basis of the difference between the average sale price and the production cost of CIL as well as estimated extractable reserves of allocated coal blocks. The computation of extractable reserves based on averages would not be correct since there are wide variations in extractability even in mines located in the same coal fields. Therefore, CAG's calculation based on average production costs and sale price of CIL is highly misleading," says the official, who described the contours of the government's response that will be presented when the matter is discussed in Parliament.
The government is also likely to say the delay in moving to a competitive bidding route for coal mines - the option favoured by CAG - was on account of conflicting opinions given by the law ministry. The ministry initially said a bidding process could be introduced by amending the Coal Mines Nationalisation Act. Subsequently, in another opinion, the ministry said the process of bidding could be introduced through an administrative order.
UMPP Report
On the issue of diversion of coal from mines allocated to the Anil Ambani-controlled Reliance Power (RPL) for Sasan ultra mega power plant (UMPP) - the subject of another CAG report on the UMPP policy - the government is likely to say that Tata Power had challenged the decision to award the project to Reliance Power in high court, but the petition was dismissed. The Tatas, who had objected to the decision to allow surplus coal to be used for another power project of RPL, have subsequently appealed to the Supreme Court.
However, in view of CAG's audit observation that the diversion of coal had resulted in undue benefits to RPL, the power ministry had brought the issue before an Empowered Group of Ministers (EGoM). The EGoM then sought the attorney general's opinion, who said the decision to allow surplus coal to be used for a power plant being set up by RPL at Chitrangi was well-considered and need not be reviewed. Keeping in mind the AG's opinion the EGoM validated the earlier decision.
The government is likely to say the permission to use surplus coal given by the EGoM has not vitiated the commercial conditions under which the Sasan UMPP was bid for.
Airport Privatisation
In case of the third report, on privatisation of Delhi airport, the government is likely to challenge CAG for "factual inaccuracies". It will say the permission to use 5% of total demerged airport land for commercial purposes - which has been criticised by CAG, according to people familiar with the report - was defined in the bid. It was known to all bidders and was factored in by them while bidding. The bidding process was subsequently upheld by the Supreme Court.
The so-called post-contractual benefit given to GMR, which is said to be a part of the CAG report, is "grossly misleading" and hypothetical. The government is likely to argue that by the same calculation, the Airports Authority of India is likely to gain Rs 3 lakh crore over the same period of 54 years on account of the gross revenue share of 45.99%.
Government readies defence for CAG reports - Economic Times
In the first report, the subject of which is the allocation of captive mines, the Comptroller and Auditor General is believed to have concluded that private sector companies such as Tatas, the Naveen Jindal group, Bhushan Steel, Jaypee and Adani groups stood to gain over Rs 1,80,000 crore. The Tatas and Jindals are alleged to be the biggest beneficiaries in the national auditor's report.
In response, the government will point out that it had never treated allocation of coal mines as a "revenue-generating exercise". "The intent of the government was to involve the private sector to invest in identified infrastructure sectors," says a top government official, who is in charge of putting together the coal ministry's defence.
CAG-Govt Clash Over Benefit Numbers
"The intent of the government was to involve the private sector to invest in the interests of the country and its economy, and to this end, this developmental process was resorted to, with the basic objective of making more domestic coal available for specified end use," says the top government official, who is in charge of putting together the coal ministry's defence.
Moreover, the government is likely to tell Parliament that gains would accrue to the allottees only if they had a choice of either buying coal from Coal India, the government-owned monopoly, or producing coal from their captive blocks. But CIL, according to the official quoted earlier, was not in a position to cater to the total demand in the country. Hence, comparison with CIL's price to arrive at the so-called financial gain, as alleged by CAG, is purely notional, the official said.
The government's response to the CAG report, likely to be from Coal Minister Sri Prakash Jaiswal, may also stress the fact that increased output of coal by allocation of captive mines was over and above the maximum that could be made available through CIL, and that demand from key infrastructure sectors such as steel, power and cement could not be met by the PSU alone.
If coal blocks were not allotted to the private sector, it would have resulted in higher imports (leading to outflow of foreign exchange) and delayed large investments in critical sectors, the government is likely to argue.
CAG's computation of future benefits for the private sector takes into account a 30-year period. The crux of CAG's argument is that some of these future gains could have been clawed back by the exchequer if the mines had been auctioned. But the Centre is likely to criticise the calculation of alleged financial gains on the ground that CAG's arithmetic is flawed.
"The financial gains have been computed on the basis of the difference between the average sale price and the production cost of CIL as well as estimated extractable reserves of allocated coal blocks. The computation of extractable reserves based on averages would not be correct since there are wide variations in extractability even in mines located in the same coal fields. Therefore, CAG's calculation based on average production costs and sale price of CIL is highly misleading," says the official, who described the contours of the government's response that will be presented when the matter is discussed in Parliament.
The government is also likely to say the delay in moving to a competitive bidding route for coal mines - the option favoured by CAG - was on account of conflicting opinions given by the law ministry. The ministry initially said a bidding process could be introduced by amending the Coal Mines Nationalisation Act. Subsequently, in another opinion, the ministry said the process of bidding could be introduced through an administrative order.
UMPP Report
On the issue of diversion of coal from mines allocated to the Anil Ambani-controlled Reliance Power (RPL) for Sasan ultra mega power plant (UMPP) - the subject of another CAG report on the UMPP policy - the government is likely to say that Tata Power had challenged the decision to award the project to Reliance Power in high court, but the petition was dismissed. The Tatas, who had objected to the decision to allow surplus coal to be used for another power project of RPL, have subsequently appealed to the Supreme Court.
However, in view of CAG's audit observation that the diversion of coal had resulted in undue benefits to RPL, the power ministry had brought the issue before an Empowered Group of Ministers (EGoM). The EGoM then sought the attorney general's opinion, who said the decision to allow surplus coal to be used for a power plant being set up by RPL at Chitrangi was well-considered and need not be reviewed. Keeping in mind the AG's opinion the EGoM validated the earlier decision.
The government is likely to say the permission to use surplus coal given by the EGoM has not vitiated the commercial conditions under which the Sasan UMPP was bid for.
Airport Privatisation
In case of the third report, on privatisation of Delhi airport, the government is likely to challenge CAG for "factual inaccuracies". It will say the permission to use 5% of total demerged airport land for commercial purposes - which has been criticised by CAG, according to people familiar with the report - was defined in the bid. It was known to all bidders and was factored in by them while bidding. The bidding process was subsequently upheld by the Supreme Court.
The so-called post-contractual benefit given to GMR, which is said to be a part of the CAG report, is "grossly misleading" and hypothetical. The government is likely to argue that by the same calculation, the Airports Authority of India is likely to gain Rs 3 lakh crore over the same period of 54 years on account of the gross revenue share of 45.99%.
Government readies defence for CAG reports - Economic Times
