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After Coal Scam Bomb, CAG Tells PMO, Media Reports On Coal Mines Exceedingly Misleading

New Delhi, Mar 22: The Comptroller and Auditor General (CAG) has said that the media reports quoting an audit report of a loss of Rs 10.76 lakh crore by not auctioning coal blocks did “not

PTI [ Updated: March 22, 2012 15:44 IST ]
after coal scam bomb cag tells pmo media reports on coal
after coal scam bomb cag tells pmo media reports on coal mines exceedingly misleading

New Delhi, Mar 22: The Comptroller and Auditor General (CAG) has said that the media reports quoting an audit report of a loss of Rs 10.76 lakh crore by not auctioning coal blocks did “not even constitute our pre-final draft and are exceedingly misleading”.


The Prime Minister's Office (PMO) issued an official release quoting excerpts from a letter written by the CAG this afternoon which clarified that “in the extant case the details being brought out were observations which are under discussion at a very preliminary stage and do not even constitute our pre-final draft and hence are exceedingly misleading”. 

The CAG said in the letter that “pursuant to clarification provided by the Ministry (of Coal) in exit conferences held on February 9, 2012 and March 3, 2012, we have changed our thinking”.

“In fact it is not even our case that the unintended benefit to the allocatte is an equivalent loss to the exchequer. The leak of the initial draft causes great embarrassment as the audit report is still under preparation.  Such leakage causes very deep anguish,” the CAG letter was quoted as saying the PMO release.

The CAG in its draft report stated that Planning Commission as well as Department of Expenditure had supported the concept of bidding of coal blocks for captive mining. 

Ministries of mines and coal too had supported such a move but Power Ministry and state governments of Chattisgarh, Rajasthan and West Bengal had expressed reservation. 

“There was an element of subjectivity, opaqueness and lack of transparency which allowed windfall gains to the allocattees,” CAG said.

The Coal Ministry, in its comments to CAG, stated that assumption of windfall gains was based on “incomplete appreciation of the circumstances prevailing then and sequence of events thereafter.”

The Ministry added that coal production from captive blocks was not available for commercial sale and out of 137 blocks, 62 coal blocks were allocated to the government companies.

“While appreciating the constraints and the view point of the Ministry, the fact remains that coal being a natural resource ought to have been allocated to private players on competitive bidding as it brings in more transparency and objectivity in the system,” CAG added.

CAG draft report cited the Supreme Court judgement on 2G spectrum that held auction as the best way of allocating scarce natural resources.

There was consternation in ruling UPA circles this morning after the Times of India published what it called a draft CAG report titled 'Performance Audit of Coal Block Allocations', which said that the government has extended "undue benefits" totalling a mind-boggling Rs 10.67 lakh crore to commercial entities by giving them 155 coal acreages without auction between 2004 and 2009.
 
The report quoted the draft CAG report to say that the beneficiaries include some 100 private companies, as well as some public sector units, in industries such as power, steel and cement.

The TOI report said, the CAG-estimated loss figure of Rs 10.67 lakh crore at March 31, 2011 prices is six times that of its highest presumptive loss figure of Rs 1.76 lakh crore for the 2G scam.

This, it says, is actually a conservative estimate, since it takes into account prices for the lowest grade of coal, not the median grade. CAG says even by the price levels prevailing at the time of allocations, the estimate of loss would be over Rs 6.31 lakh crore.

According to the TOI report, here's how the auditor has calculated the "windfall gains".
 
First, an estimate of the cost of production for each block was arrived at by taking into account the actual cost of production in a similar Coal India mine for the same year. Then the difference between CIL's sale price and cost of production was multiplied by 90% of the reserves in each block. The figure thus obtained was the windfall gain for that block.

The TOI report quotes the draft report:  "While appreciating the constraints and the viewpoint of the ministry, the fact remains that coal being a natural resource ought to have been allocated to private players on competitive bidding as it brings in more transparency and objectivity in the system."

However, Congress MP and industrialist Naveen Jindal says: "For all these 155 blocks, coal India did not have any mining plans as it found them unattractive..CAG may have its view but whether it is JSPL or any other private company, they are all Indian entitites and creating wealth for the country."

The TOI report quotes the draft report:  "...The State legally owns the natural resources on behalf of citizens and the natural resources cannot be allocated to private hands without ensuring that the benefit of low cost of the natural resources would be passed on to the citizens."

The report further says: "The object should be to serve the public cause and to do the public good by resorting to fair and resonable methods. Every action/decision of the State...to give largesse/confer benefits must be sound, transparent, discernible and well well-definied policy."

The TOI report says, among the major private sector beneficiaries are Tata Group entitites,  Jindal Steel & Power Ltd, Electro Steel castings Ltd, the Anil Agrawal group (Vedanta) firms, Delhi-based Bhushan Power & Steel Ltd, Jayaswal Neco Nagpur-based Abhijeet group And Aditya Birla Group companies, Essar group's power ventures, Adani Group, Arcelor Mittal India, Lanco group and several other small to medium players.

A major player in power Reliance Power which is setting up the Sasan and Tilaiya ultra-mega power prijects is missing from the list, because the section on "Windfall benefit to private companies" does not include 12 coal blocks given for the government's showpiece power projects as they were allocated through a tariff-based competitive bidding route, says the TOI report.

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