Coalgate?

Coalgate has paralyzed an already slow-moving govt machinery. But is it really such a big scam? The opposition has reacted predictably by making shrill noises without bringing out the entire facts and not realizing all izz not well in their ranks either. There is no way that their state governments were not involved in this. The government has tried to cool things by letting loose the CBI. And now both would be hoping to save their asses.

Being in the industry, I have some perspective on Coalgate. The important question is not why a natural resource like coal was not auctioned, but how it was allotted. The scam is in the process of allotment, not in the policy. Just like in the 2G scam. And I doubt the CBI will be able to do justice to the nation on this count.

Auctioning of coal blocks is fraught with danger. Companies may pay high amounts for the blocks but most of that will have to result in increase in prices of end products like electricity. Is the government is any position to do that? NO. We are already reeling under high inflation. 

This brings me to the process of allocation where seemingly some companies were allotted blocks arbitrarily and maybe illegally. So did the private parties benefit from the allocation of coal mines and by how much?

I would say they benefited in 3 ways. One is it enabled them to lure gullible investors to give them fat valuations. Secondly, it gave them fuel security. And lastly they would be able to save cost as CIL is considered to be an inefficient miner so its prices would have been higher. I think that of these the biggest benefit is fuel security – if they are able to mine that coal that is.

So what should be done now? Cancel the allocations? Govt won’t do it, atleast for those blocks where there is some progress. If the courts do it will lead to chaos in an already chaotic industry with ominous implications for the entire economy and there will be lawsuits which will drag on for years.

Is there any solution? The CAG says loss to the government is because CIL loses out on profit. What can be stipulated is that the private companies should sell the coal to CIL, at what would have been CIL’s cost of production. There are existing benchmarks of CIL’s cost for each type of mine. Hence, the price can be considered fair. Here the private company would simply act as a mine developer & operator, with potential to make profit if it is more efficient than CIL. I don’t think anyone should have an objection to that.

But we can’t stop at this. As the companies are losing out on fuel security and would litigate. Some mechanism can be worked out to give them some sort of right of first refusal for an agreed period to buy back the coal mined by them at CIL’s final selling price. After that they would stand with the others in the queue for coal supply. They get their coal and get to keep the surplus arising from their superior operations as compared to CIL. CIL gets its ‘lost’ profit back. 

However, the wrongdoings in the allotment process must be pursued and punished. And I suspect that, just like in 2G, the courts will act and the government will try to cover up.