Opinion Denationalise coal,now

I agree that the CAG figures are wrong. I believe that the gain for private parties or political cronies is not Rs 1,86,000 crore,but Rs 5.1 lakh crore. I give below a detailed cost analysis to prove my hypothesis.

The production cost of open pit mining or open cast mining is about Rs 600 per tonne,including state royalty. To improve its calorific value,the coal must be washed and there is an inbuilt element of wastage. If you add Rs 100 for washing,and another Rs 100 for wastage,you would arrive at a figure of about Rs 800 per tonne. With underground mines,the cost of mining is Rs 1,100-1,150 per tonne,including royalty. With washing and wastage,this figure goes up to Rs 1,350. Since 80 per cent of the coal in India is mined underground,the average cost of production works out to about Rs 1,250 per tonne.

At the last e-auction by Coal India Limited,the rate,ex-mine,of Central Coalfields was Rs 3,427 per tonne (40 per cent calorific value). For Western Coalfields,it was Rs 5,693 (42 per cent calorific value). The cost of imported coal varies from Rs 4,500 to Rs 6,400,landed,depending on where you are sourcing it from and its quality. So the average cost of imported coal is Rs 5,000-Rs 5,200. Since its calorific content is higher (50 per cent calorific value),you reduce the price by 20 per cent to bring it at par with the calorific value of Indian coal,and the figure would be about Rs 4,200 per tonne.

Now consider this: the average price of Indian and imported coal works out to Rs 4,200-4,250 per tonne. The cost of production of a captive mine is Rs 1,250. So,Rs 3,000 is the differential. In other words,anyone who has a mine is making a windfall profit of Rs 3,000 per tonne. Multiply this with the 17 billion tonnes that was doled out and you arrive at the figure of Rs 5.1 lakh crore. This is the amount that could go into the kitty of the oligarchs and cronies who have cornered the mines.

This scenario is reminiscent of the one that arose in a disintegrating Soviet Union,when oligarchs,in connivance with state officials,captured the state’s mineral resources. Here in India,paan masala wallahs,TV manufacturers and newspaper owners have jumped into the fray — people who have no other known expertise except their ability to manage the powers that be. It is no surprise that names of MPs and ministers are also surfacing in this context.

Finance Minister P. Chidambaram has asked: where is the gain if the coal has not been mined? This is strange logic. If tomorrow morning the government transfers the Ashok Hotel to your name,can you claim that you have not benefited at a time when the hotel had no guests? Or in B.S. Yeddyurappa’s case in Karnataka,where he signed off land to his family,can we say no loss was caused to the state because that land was not built on after that,and Mother Earth remained in Bangalore?

The valuations of companies that were granted the coal blocks went up exponentially overnight. On day one of Reliance Power’s IPO,its equity of Rs 2,260 crore was valued at Rs 1,01,700 crore. Obviously,the Rs 99,000 crore difference was because investors knew that it had got a huge gift from the government in terms of mining blocks.

There are similar figures for other companies; their market cap rose steeply between July 31,2007,and July 31,2012 — a period in which the stock market went up only 2.30 times. For JSW,it rose from Rs 3,750 crore to Rs 18,587 crore; for GVK,from Rs 346 crore to 1,907 crore; for JSPL,from Rs 4,570 crore to Rs 47,306 crore; and for Sterlite,from Rs 21,000 crore to Rs 51,250 crore (Source: Bloomberg).

Why were these companies getting these steep valuations? Because they had been gifted these coal mines. And there was no justification for the mines being gifted away without any benefit to the exchequer.

I demand that the licences be cancelled because they have been doled out in a system that promotes crony capitalism and is anti-business. If one company gets a mine and the other does not,the one that has bagged the mine because of defter political management will make much more money than its rival,even if it runs the company inefficiently. Why must state resources be given away for free to selected individuals,companies and cronies,and without the state benefiting at all?

The cost of coal is 65 per cent of the total cost of production in the power industry; 20 per cent in the cement sector and 4-5 per cent in the steel industry (according to bill of sales figures from power,cement and steel majors). Be it in cement,steel or power,companies are using state-gifted resources,that is,captive mines,and selling the end product at market price. That is,they are selling at the same price as those who do not have captive mines. How does the aam aadmi benefit in this situation?

One point that is being repeatedly ignored in ongoing public debates is the fact that captive mines are actually counter-productive for business as they promote inefficient companies (who have been granted coal blocks) at the cost of the more efficient ones who could not “manage the environment” to obtain coal mines.

As Indian industry comes of age,we want a level playing field for all resources. The state’s vital resources must be protected and if the private sector benefits,it must pay the price. Instead,we are seeing crony capitalism at its worst.

Therefore,the only way out of this mess is to cancel all the licences and make coal a standalone business,as it is the world over. When you go in for auctions,the government gets a huge amount upfront as well as a yearly royalty on coal production thereafter. If it then wants to subsidise utilities such as power,it can do so in a straightforward and transparent manner.

Coal must be denationalised because it is crucial to our energy security and because our mineral resources need to be managed much more efficiently. The fat that is built into the public sector must be shed.

The reason why the coal scam took place is that,in the UPA regime,power is divorced from responsibility and some party managers have assumed a larger-than-life role. The poor prime minister is personally clean,but helpless.

The writer is a Shiromani Akali Dal MP in Rajya Sabha