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Coal-a-very: scandal in the offing?

business Updated: Mar 27, 2012 22:15 IST
Gaurav Choudhury
Gaurav Choudhury
Hindustan Times
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The government has come under fire after a recent media leak cited a draft CAG report that suggested that the exchequer may have lost Rs 10.67 lakh crore in not auctioning coal deposits from 2004 to 2009. HT explains the state of play in the allocation and pricing of coal and other natural resources.

What's recent controversy all about?
According to media reports citing a draft Comptroller and Auditor General (CAG) report, about 100 private and some public sector companies unduly benefited from the allocation of 155 coal fields.

How were the coal blocks allocated?
The CAG draft said that the move benefited private and public sector companies by allocating them 155 coal blocks without auction between 2004 and 2009.

Coal minister Sriprakash Jaiswal has said that the government invited applications through advertisements. The coal ministry consulted state governments after receiving applications and the blocks were allocated through a screening committee chaired by the coal secretary.

What has the CAG observed?
According to the CAG draft, the government may have earned revenues worth Rs 10.67-lakh crore if the coal blocks were allotted through an auction system."There was an element of subjectivity, opaqueness and lack of transparency which allowed windfall gains to the allocattees," the leaked draft report said.

Why didn't the government call for bids?
The Centre said state governments had opposed a process of bidding. The government said that the allotment of coal fields was done in a transparent manner and that, not a single block was allotted without the consent of the state governments.

What is the current process of allotting coal blocks?
Coal fields are currently allocated by a screening committee. Interested firms are ranked on the basis of different parameters such as land and environmental clearances. According to Jaiswal, the UPA-I government started the practice of awarding coal blocks through advertisements, discontinuing the earlier practice. He said that between 1993 and 2004, scores of coal blocks were awarded without issuing any advertisements.

What is the status on introducing auction method for awarding coal blocks?
The proposal for allocation of coal blocks through competitive bidding was mooted for the first time a couple of years ago. The government is framing guidelines and rules for the proposed competitive bidding for auction of coal blocks.

How different or similar is this to the 2G spectrum scam?
In the 2G spectrum (radio frequency) scam, the department of telecommunications (DoT), it has been alleged, decided on who should be given the licences much before the bids had come, exploiting loopholes in the existing first-come-first-served (FCFS) policy.

What happened in the 2G scam?
The Centre allotted licences on the FCFS policy to companies without established credentials on mobile telephony. Telecom licences and spectrum were granted in 2008 at 2001 prices and some of the companies were accused of divesting equity at significantly higher prices. Telecom firms, it has been alleged, were awarded licences arbitrarily and granted 2G spectrum on January 10, 2008 were offered at extremely cheap rates robbing the government of revenues.

Is awarding natural resource to the highest bidder through an auction always the best method?
In allocation of natural resources, it is not always the best method to offer the resource to the highest bidder. Public purpose may demand a different use of the resource from what the market may put it to.

This is evident in the case of urban land, where commercial uses could displace all other uses and all land to be auctioned. Only the rich and wealthy can win auctions in cases such as of allotment of Delhi Development Authority (DDA) flats. Auctions favour large corporations with deep pockets that can, sometimes, lead to monopolies. After all, there is the other side of the argument that an auction would raise power tariffs and that, not all coal blocks are profitable or commercially viable.

State-run NTPC has said it made no windfall profits from the allocations and that the lower costs meant cheaper electricity for consumers.