Column : What the CAG & BJP are afraid of

Written by Surjit S Bhalla | Updated: Sep 1 2012, 08:03am hrs
CAG admits only a part of the R1.86 lakh crore could accrue to the exchequerthis is unlikely to exceed 10%

The more you dig, the murkier it gets. Something strange is going on. The government is on the mat for misallocations of coal to the private sector. Based on the sensational and sensationalising CAG report on coal, the Prime Minister of India, who also happened to be the then coal minister, Manmohan Singh, has been asked to resign for aiding and abetting corruption to the tune of something like R1.86 lakh crore.

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 explanationthe 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 CAGs 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 preamblenow 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 allocationChhattisgarh (16%), Jharkhand (32.1%), Madhya Pradesh (2%), Maharashtra (2.4%), Orissa (46.5%) and West Bengal (1%). None of these states were ruled by the Congress, and all of the states opposed the auction of coal mines.

Uncomfortable fact 2: Mr 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 Mr Yechury.

Uncomfortable fact 3: This is what the CAG report actually says: Audit has estimated financial gains to the tune of R1.86 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 R1.86 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 R1.86 lakh crore as the purported loss, isnt 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% of the CAG-BJP total (documented below and in the table).

Uncomfortable fact 4: The profit per mine shown by the CAG is R295 per tonne. The Pied Piper blithely assumes, followed religiously by the comrades in arms BJP and the 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 than Ms Indira Gandhis maximum income tax rate of 97% Very differentat least in Ms Indiras 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 confiscatedbut 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% rate.

Uncomfortable fact 5: The part that should have accrued to the government, and didnt, 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 Indias mines are among the lowest quality grade mines in the world, and that the coal mines given to the private sector for free are of even 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 lifetime 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 R20.7 at the 2009-11 exchange rate of R45/dollar. First estimate of auction revenue: R13,000 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% of the coal price. For the allocation of the Indian coal, the equivalent royalty would be 4.2% of the Indian coal price of R1,028 per tonne, or R43/tonne. Second estimate of auction revenue: R27,100 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 R1.35 lakh crore. This yields a valuation of R20.5 per tonne. Third estimate of auction revenue: R12,900 crore.

Uncomfortable fact 6: With these valuations, the average auction value of the gifted coal to the private sector is R17,700 crore. The loss assumed by the CAG and the BJP (and assumed is the operative word) is R1,86,000 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% of the stated figure. Even the MGNREGA 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.

Surjit S Bhalla is chairman of Oxus Investments, an emerging market advisory firm. Please visit thirdpartyofindia.wordpress.com for an open forum on Indias politics