Coal block e-auctions: With Rs 2 lakh crore in purse, has Modi govt really made any profit?

By Harshmeet Singh

All the hue and cry made by the Manmohan Singh government over CAG's report of 1.86 lakh crore loss to the exchequer during the Coal block allocations from 2004 to 2011 has been rejected. With the proceeds from the current coal blocks auction comfortably crossing 2 lakh crore (includes proceeds from e-auction, royalty and the upfront payment), the Government is set to get a huge shot in the arm.

What went wrong in the first allocation?

Regarded as one of the biggest scandals in the Indian history, the coal blocks' allocation between 2004 and 2011 were marred with controversy. According to the CAG, rather than opting for a competitive bidding, the Government chose to allot coal mines to Private players and PSUs at a nominal prize, giving them a 'windfall' gain in the process. Several blocks were allocated on 'special' recommendations of the ministers involved.

Interestingly, the initial report of the CAG never accused the Government of any corruption charges. It was only after the CVC (Central Vigilance Commission) asked the CBI to conduct an enquiry did the charges of corruption and wrong-doings surfaced. The loss figure of 1.86 lakh was arrived at by excluding the share of PSUs. According to Vinod Rai, the erstwhile CAG, had PSUs been taken into consideration, the loss would have amounted to over 10 lakh crore!

From incorrect information being given by the companies to new names being added to the list of conspirators with each passing day, the Coalgate took the entire country by storm. The curious case of missing files added to the already spectacular drama.

CBI director Ranjit Sinha's testimony in the SC that the final status report was shared with the Law Minister, Ashwani Kumar, 'as desired by him', before being presented in the Supreme Court drew the ire of the judges. Sinha further claimed that the original content of the report was modified by the minister. This forced Harin Raval, the additional Solicitor-General to resign from his post, for misleading the Supreme Court.

Final Supreme Court Verdict

Soon after the Modi Government assumed charge last year, the Supreme Court came out with the final judgement in the coal block allocation case. The apex court cancelled the allocation of 214 coal blocks out of the total 218 blocks allocated since 1993. This presented a dual opportunity for the Modi regime.

Firstly, it gave a chance to the new Government to establish a clean image for itself by ensuring a transparent allocation of coal blocks. Secondly, it presented an opportunity to fill in the exchequer for the public welfare schemes that the Government wishes to implement in the future.

Current e-auction of coal blocks

Of the 214 blocks whose allocation was void by the Supreme Court, only 31 (18 operational and 13 soon to be operational) have been put under the hammer till now. With the current bids already exceeding the CAG's figures, the total revenue from 214 blocks should easily end up close to 15 lakh crore. Just to be clear, the total bid amount of 2.07 lakh crore for the 31 blocks would be received by the Government over a period of 30 years, thus eroding the present value of this amount.

Apart from the transparency it brought forth, the e-auction method brings a number of other points to the table as well. With bids soaring high, the companies would be forced to increase their mining efficiency to ensure that they extract huge amounts of coal. This would put an end to hoarding with companies extracting maximum coal in order to cover their costs.

Reduction of power tariffs?

Piyush Goyal, the Coal and Power minister decided to segregate the coal blocks into two categories, viz. for power production and for non power production. With zero ceiling price for the 'power production use' blocks, the government adopted the reverse auction method (the company with the lowest bid wins the block) to allocate these blocks. Additionally, for every Rs 100 dip in the bid for the power production blocks, the power tariff was to be lowered by six paisa per unit.

This reverse auction process resulted in the reduction of power tariff worth Rs 96,971 crore, which would bring in much cheer for the end consumer. However, allocation of blocks at different rates by earmarking their separate purposes can be an ideal ground for corruption. The companies would always be tempted to extract coal at a lower cost from the mines tagged for power production, and sell it at a much higher cost in the market to earn profits.

Benefits of a healthier exchequer

The Government's ambitious programs such as the 100 smart city project, Make in India, revamping of MNREGA and e-Governance initiatives could take a heavy toll on the national exchequer. The success of coal block and telecom spectrum auctions augurs well for the financial part of these schemes. However, it is their efficient implementation on the ground that would decide the future of our country.