Opinion What the CAG and BJP are afraid of

Curiously,the BJP,which is the token leader of the No Dialogue Allowed NDA,believes,nay demands,that the CAG report tabled in Parliament cannot,must not,be debated in Parliament; that the PM has to resign first,and that in asking for a false moon,the BJP is actually serving Indian democracy and leading the fight against corruption. At least that is what their erstwhile “intellectual” leaders are saying is their motivation for their beyond undemocratic demands. There is a simpler explanation — the BJP is afraid that if the CAG report was discussed,the rot within the report will be revealed to the Indian voter. Then all basis for the CAG’s credibility,and the demand for removal of the PM,will sound hollow,insecure,and false. Better to leave people in wonderment about the holiness of the BJP,than to have a debate and remove all doubt. The CAG and the BJP have a huge common interest in not having the coal report discussed in Parliament. That is why we are not seeing any debate,and most likely,will not see any in the future. The rot runs deep.

I believe that there are solid grounds for the dismissal and removal of the Sonia Gandhi-Manmohan Singh-led government. Surely,the most corrupt and inept government in Indian history,and considerably more incompetent than any modern-day democratic government in the world. Surely,these are grounds for dismissal and the advent of mid-term polls. But the corruption and incompetence cannot be gleaned from the CAG reports,and that is the problem with the no-debate BJP. So much for preamble — now for some facts that both the CAG and the BJP do not want discussed.

Uncomfortable Fact 1: The CAG report itself establishes that the PM preferred the auction route. The following six states were involved in the “dole” of coal allocation — Chhattisgarh (16 per cent),Jharkhand (32.1 per cent),Madhya Pradesh (2 per cent),Maharashtra (2.4 per cent),Orissa (46.5 per cent),and West Bengal (1 per cent). None of these states were ruled by the Congress,and all of the states opposed the auction of coal mines.

Uncomfortable Fact 2: Sitaram Yechury of the CPM claims that his party “never opposed competitive bidding”. To substantiate,he offers the following reasoning: “the interests of the states should not be bartered away to private companies”,and coal blocks should be allocated to State Electricity Boards,power PSUs and all public utility services. “What remains after that should be auctioned. That was the stand of the Left Front government.” Somehow,it is difficult to reconcile the two statements of Yechury.

Uncomfortable Fact 3: This is what the CAG report actually says: “Audit has estimated financial gains to the tune of Rs 1.86 lakh crore likely to accrue to private coal block allottees. A part of this financial gain could have accrued to the national exchequer by operationalising the decision taken years earlier to introduce competitive bidding for allocation of coal blocks” (emphasis added). So the CAG report itself admits that the Rs 1.86 lakh crore is not what the actual loss to the exchequer is. This seems to have escaped the attention of all the media and especially the BJP. With everyone quoting the figure of Rs 1.86 lakh crore as the purported loss,isn’t it somewhat disingenuous and irresponsible for the CAG to not correct these wanton errors of interpretation? Now what part is “a part… [that could have accrued” is shown to be less than 10 per cent of the CAG-BJP total (see table).

Uncomfortable Fact 4: The profit per mine shown by the CAG is Rs 295 per tonne. The Pied Piper blithely assumes,followed religiously by the comrade in arms BJP and CPM,that ALL of the assumed profit is part of the gift to crony capitalists. In other words,in keeping with the crony socialism policy of the Congress,the private sector should enjoy zero profit. How different is this assumption from Indira Gandhi’s maximum income tax rate of 97 per cent? Very different — at least in Indira’s case,the crony capitalist dictated to by the crony socialist (set a thief to catch a thief) was allowed to keep some profits before his income was confiscated — but according to the CAG and supreme crony socialists in the BJP,all of the money earned by the capitalist should be taxed at a 100 per cent rate.

Uncomfortable Fact 5: The part that should have accrued to the government,and wasn’t,is the auction equivalent. It is a market determined licence fee. So how much are untapped non-Coal India mines worth? What we do know is that Coal India’s mines are among the lowest quality grade mines in the world,and that the coal mines “given” to the private sector for free are even of lower quality.

The table outlines different pieces of information on the cost of acquisition,or the right to mine coal,or the licence fee. The coal mines given to the private sector have theoretical life-time reserves of 6.3 billion tonnes. Valuations according to three different methods are shown. The first estimate is for three recent acquisitions by Indian firms for coal mines abroad. The 2009-2011 average is around $0.46 per metric tonne or Rs 20.7 at the 2009-11 exchange rate of Rs 45/ dollar. First estimate of auction revenue: Rs 13,000 crore.

The second estimate is for a Kentucky mine,acquired in June 2012 with a royalty fee of $5 per extracted tonne at a prevailing market price of $120 per tonne. The royalty is 4.2 per cent of the coal price. For the allocation of the Indian coal,the equivalent royalty would be 4.2 per cent of the Indian coal price of Rs 1,028 per tonne,or Rs 43 per tonne. Second estimate of auction revenue: Rs 27,100 crore.

The third estimate is the market valuation for Indian coal as provided by Coal India. This public sector firm has coal reserves of 65.8 billion tonnes and a market cap (inclusive of cash reserves) of approximately Rs 1.35 lakh crore. This yields a valuation of Rs 20.5 per tonne. Third estimate of auction revenue: Rs 12,900 crore.

Uncomfortable Fact 6: With these valuations,the average auction value of the gifted coal to the private sector is Rs 17,700 crore. The loss assumed by the CAG and BJP (and assumed is the operative word) is Rs 1,86,000 crore or more than 10 times this amount!

Given these facts,if you were the CAG or the BJP,what would you do? The number is less than even 10 per cent of the stated figure. Even the MNREGA loss figure each year is more than this amount,and the PDS loss is a multiple of this amount. These low sums will not even get a gullible press to react,let alone the CAG. It is a case of khoda pahad aur nikla chuha,wo bhi mara hua (dig a mountain and a dead rat is all that emerges). Better,much better,not to have a debate than to risk being exposed as naked.

The writer is chairman,Oxus Investments,an emerging market advisory firm. Visit thirdpartyofindia.wordpress.com for an open forum on India’s politics

How truthful is the Rs 1.86 lakh crore CAG estimate of coal loss?

Estimation of Auction Revenue by various methods Value

Amount of coal reserves allocated to the private sector,billion tonne 6.3

Royalty paid in recent international acquisitions by Indian firms

Indonesian coal mine acquired by GMR Energy,2009 – $/ tonne 0.80

Australian coal mine acquired by GVK group,2011 – $/ tonne 0.20

Indonesian coal mine acquired by Monnet Ispat & Energy,2011 – $/ tonne 0.37

Royalty on international high quality coal – (average of above three),$/ tonne 0.46

First estimate of auction revenue (at Rs 45/ $),Rs crore 13,000

Most recent royalty based acquisition (high quality coal) – Kentucky Mine,

US,June 2012

Royalty paid to owner on extracted coal,$/ tonne 5

Price of extracted coal,$/ tonne 120

Royalty being paid as % of coal price 4%

CAG Estimated average price of CIL coal,Rs/ tonne 1,028

Second estimate of auction revenue @ 4.2% royalty,Rs crore 27,100

Indian coal valuation – Coal India Limited,2010-11

CIL coal reserves,billion tonnes 65.80

CIL net worth (inclusive of cash reserves),Rs crore 135,000

CIL coal valuation,Rs/ tonne 20.50

Third estimate of auction revenue @ CIL coal valuation,Rs crore 12,900

Average estimate of auction revenue,Rs crore 17,700

CAG-BJP estimate of loss to the exchequer (auction revenue),Rs crore 186,000

Ratio of auction revenue to CAG loss (Truth to Falsehood ratio) 9.5%