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Coalgate: the cost of ideology

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The Left Front has always opposed amendment of the Coal Mines Nationalisation Act, 1973, that banned private coal mining, save for captive purposes. UPA-1 wanted to amend this Act in 2004 to allow private mining-after which truly competitive auctions would have become feasible. But the LF prevented any amendment.

UPA-2 has taken over two years to devise an auction procedure, and can certainly be criticized for semi-paralysis. Suspicions of venality will persist. But this must not cloak the Left Front's role in sabotaging commercial mining and auctions.

Experts will have varying views of a mine's worth, depending on their future expectations of prices, technology and much else. Only open competitive bidding can determine what a block is actually worth.

Unfortunately, open competitive bidding is forbidden by the Act. Commercial mining specialists, who dominate mining the world over, are not allowed to bid for coal mines in India. Limiting the bidding to end users (like steel, cement and power plants) will definitely yield lower prices than open auctions in which all can participate. Some coal blocks are conveniently situated only for one or two end-users, who can therefore bid very low.

If the CAG is serious about estimating losses from faulty policies, he should first estimate the loss from nationalizing coal (which has resulted in India, with one-tenth of the world's coal reserves, becoming a massive importer of coal at sky-high prices because of public sector incompetence in coal production).

Second, he should estimate the loss from restricting bidding to end-users. That will show how much of the supposed scam should be pinned on the Left Front and other opponents.

Apart from maximizing government revenue, open auctions ensure fairness-anybody can bid, and a few cronies with political links cannot corner coal blocks. Hence auctions would be desirable even if coal prices were so low that no significant windfall accrued to the mine owners.

The BJP first moved legislation in the Rajya Sabha in 2000 to amend the Act, but did not have the guts to follow through. Then in 2004, UPA-1 was thwarted by the Left Front-on whom it depended for survival-from amending the Act. It then considered whether auctions could nevertheless be held, limited to end users. Progress on this was stalled, with some saying that allocations would be faster than auctions, and others saying that auctions would entail thorny legal issues and trade union opposition.

After UPA-2 came to power in 2009, there was somewhat faster movement. Possibly the CAG report influenced this. The minister for coal now says that auctions will begin in a few months for 54 coal blocks.

However, competition will remain unfairly limited to end users. The Investment Commission headed by Ratan Tata wanted mining to be opened up to all, including foreign investors. This has not happened.

Coal allocations are relics left over from the old licence-permit raj, which imposed controls in the holy name of socialism, and then used these to line the pockets of ruling parties, at the Centre and in states. Politicians made money from not only allotting coal blocks but arranging scarce coal supplies from Coal India.

Venality on the part of Congress and some regional parties could be one reason for the delay in moving to competitive auctions. Some crony capitalists were surely happy with the system of allocations rather than auctions, and also with the proposed limitation of bidding to end users. These cronies would have paid their political backers whatever was required for this. But they would not have paid the Left Front for limiting competition: that service was available to them free of charge, on ideological grounds alone.

To paraphrase an old sarcastic verse: "You cannot bribe the upright communist/ Even if you're keen to./But seeing what the chap will do, unbribed /There is no need to."

For the full text of the column by Sri S Aiyer in the SToI, click here.

Another instance of how the holy cow treatment of the PSU's is causing such huge damage to the economy, and thereby denying employment opportunities to the youth of the country.

Muralidhar Rao


murali772's picture

mother of all scams - public sector waste

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The first CAG draft calculated a much bigger loss of Rs 10.8 lakh crore. That has now been slashed by nine-tenth, by leaving out allocations to government-owned companies. But why? The larger figure drives home the point that enormous revenues have been lost through free allocations to Coal India and other government companies. These sums have not been clawed back through higher profits. Rather, they have been dissipated partly in cheap power and partly in waste and inefficiency. Losses ascribable to government companies are nine times as high as those ascribable to private companies. Sadly, people in the media and politics seem to think that public sector waste is acceptable, while corruption is not. In fact, public sector waste has been far greater than corruption, and has done much more to keep India impoverished and backward.

The CAG seems to think that coal profitability automatically means a high auction price. No, this depends critically on how many people are allowed to bid and with what conditions. The problem in coal is that private mines are not permitted for commercial sales. Only captive mines are allowed for industries using coal (steel, power etc). This automatically limits the number of bidders per mine, and therefore lowers auction prices. The CAG should have said that the refusal of all political parties to open up commercial mining has been a huge scam costing enormous sums. The Left Front is the biggest culprit on opposing private sector mining, and is therefore especially culpable for revenue losses.

The public is resigned, sadly, to all sorts of political controls and allocations in the holy name of the people, which are then used for kickbacks and building patronage networks. We need to end the evil of discretionary allocations by ministers in every sector. We need auctions in profit-oriented cases, and allotment by lottery where the government wants low prices.

For the full text of the column by Sri S A Aiyar in the ToI, click here.

For all that, privatisation continues to be a dirty word. Some of the reasons may be found here.

Muralidhar Rao
abidpqa's picture

The Left Front is the biggest

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The Left Front is the biggest culprit on opposing private sector mining, and is therefore especially culpable for revenue losses.
Why blame the left front. First they have oppsed private sector mining itself. That was not considered. If that was accepted, then auction would not have been necessary. Alliance itself was broken with Left front, and so why now blame them?

What was the position of the private sector at the time of allocation? Their view need not be available to the public because it is their right keep it a secret.

Losses ascribable to government companies that is concessions will be returned to the people. Private sector concessions will be illegitimate profits.


murali772's picture

ideological rhetoric

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@ Abidpqa  -  the position has changed a lot since the heydays of the left front, when they could block every reform with their ideology talk. The allegation against the Manmohan Singh government today is not about letting in the private sector into mining, but about the methodology adopted. Everybody, including the left front members, have realised that Coal India by itself cannot meet the growing demands of the country, the same way as an AIR-INDIA, SBI, MSNL, the four govt-owned insurance companies, AIMS, IIT's, IIM's cannot meet the demands in their respective fields by themselves.

The faulty methodology adopted has led to furtherance of crony capitalism, which is where the problem is, and about which, I myself have commented enough times on PRAJA.

There are enough regulatory bodies to keep a check on the activities of private companies - Company Law Board, Competition Commission of India, etc, etc. Strengthening them needs to be the focus of the government, and to be effective there, they need to eventually phase themselves out of providing services and producing goods.

So, even as the left is beginning to speak a different language today, you still want to remain stuck mouthing their old ideological rhetoric, all one can say it's your privilege

Muralidhar Rao
murali772's picture

government monopoly menace

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Industrialist and Congress MP Naveen Jindal is due to be grilled by the CBI this week, on charges of his firm illegally colluding with former minister of state for coal Dasari Narayana Rao to garner coal block allocations for itself. Similarly, there are a number of other corruption charges waiting to be investigated. The CBI enquiries, however, have turned the spotlight on the arbitrariness of the coal block allocation policy itself. It's a situation tailor-made for exploitation, making corruption almost inevitable in the process.

Coal India Limited, the major supplier of coal in the open market, has been unable to meet demand, forcing increasing amount of coal imports at much higher prices. This is absurd considering that India has one of the largest reserves of coal. Growing coal imports are also one of the reasons behind growing trade imbalances and the current account deficit.

It's to circumvent the problems caused by Coal India's monopoly on mining coal that the captive coalmine policy was conceived. But the policy hasn't helped much in meeting coal shortages, while its opacity has become a strong incentive for corruption and influence peddling. Removing the supply constraints on coal requires the rollback of coal nationalisation itself and fully opening up the coal sector to private industry.

For the full report in the ToI, click here.

Neta's and Babu's very often try to deflect corruption charges against them saying "taker is as much corrupt as the giver". Now, here is a clear cut instance of the giver (ironically a neta, who is also a leading industrialist) having little choice other than to accept the "conditions" put forth by the minister-in-charge in order to ensure that his huge manufacturing set up doesn't come to a stand-still and in the process incurr losses in tens of crores everyday. As such, it's a totally unequal situation, and that's why I will always put the blame largely, if not totally, on the taker, rather than on the giver. Besides, the entire shortage situation has been artificially created by the taker and his cohorts to feather their own nests.

That a fellow neta has been meted out the same treatment by the taker and his cohorts is perhaps their idea of providing for a level playing field, and thereby projecting themselves as fair. Indeed amazing are the ways of our babu's and neta's.

Delhi citizens, led by the redoubtable Arvind Kejriwal, have been making a big hue and cry over power tariff increases, of over 50% in the past 5 years (check here), and justifiably too. But, like I have stated before "the main cost components for the power distribution companies are coal and its transportation - one handled by the government monopoly Coal India, and the other by another government monopoly Indian Railways". The problem very clearly is the monopoly hold of government producers and (dis) service providers, and not just in coal sector.

Does Arvind Kejriwal want to do something about that?

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