Coal block valuation panel seeks assistance from CAG

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New Delhi | November 23, 2014 8:03 AM

A committee set up to ascertain the valuation of 42 coal blocks and liabilities associated...

A committee set up to ascertain the valuation of 42 coal blocks and liabilities associated with them has asked for CAG's assistance. (Reuters)A committee set up to ascertain the valuation of 42 coal blocks and liabilities associated with them has asked for CAG’s assistance. (Reuters)

A committee set up to ascertain the valuation of 42 coal blocks and liabilities associated with them has asked for the Comptroller and the Auditor General’s help in determining a methodology to value the mines before they are auctioned. The panel has decided to rope in the CAG in light of the public auditor’s report on irregularities in allocation of coal blocks since 1993.

The panel headed by former chief vigilance commissioner (CVC) Pratyush Sinha has been tasked with determining liabilities associated with operations of a coal mine, demarcation of land for afforestation and re-settlement of people impacted by mining operations. In its two-hour meeting on November 5, the panel observed that since the valuation process could be “ a contentious one, the numbers and figures arrived after valuation of these 42 functional blocks may be contested by the prior allottees as well as the public”. They added that domain experts within the government should draw a blueprint which should be duly vetted by the CAG before the panel submits its road map to the Centre.

The committee has asked for the government’s help in providing the services of a cost auditor from the Indian Cost Accounting Services, a panel of senior valuers from the finance ministry and an official from the central audit and accounts services. “The panel has also solicited the services of the Comptroller and Auditor General (CAG) and also from the ministry of expenditure. This is possibly because the CAG’s report in 2012 on the alleged irregularities on allocation of 214 captive coal blocks since 1993 had led to a nationwide controversy on the issue,” an official who attended the meeting told The Sunday Express.

Separately in notices served earlier this month to the 204 allottees whose blocks were cancelled by the Supreme Court in September, the coal ministry has asked them to furnish the required information on environment clearance, production and their land status.

They will also have to share the details of the investments made in their respective projects, the number of people employed and machinery deployed to exploit coal. “This information is needed to help the committee arrive at a desired figure on the quantum of investments made by the allottees in their blocks,” the official reasoned. Senior coal ministry officials told the panel during the meeting that the key challenges is to ensure that the bidding process is designed in a manner so that electricity tariffs do not go up. To achieve this objective the fuel cost cannot be allowed to be a pass through or else the entire purpose of auctioning the 42 blocks may get defeated, they pointed out.

The officials told Sinha that it made sense to adhere to the Central Mine Planning and Design Institute’s suggestion to ascertain total value of a block by computing its net present value based on the discounted cash flow (DCF) approach.

The DCF methodology uses future free cash flow projections and discounts them (most often using the weighted average cost of capital) to arrive at a present value, which is used to evaluate the potential for an investment proposal.

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