Canaries & coal

Music has its share of one-hit wonders. Delhi-born singer and musician Peter Sarstedt fits that category. His claim to fame being the 1969 hit Where do you go to, my lovely. The song is about a fictional girl called Marie Claire.

There is a stanza in the song which brings out the unhappiness in her life. Here is how it goes:
“But where do you go to, my lovely
When you’re alone in your bed
Tell me the thoughts that surround you
I want to look inside your head, yes I do.”
Now this is what I want to ask Prime Minister Manmohan Singh as the country moves from one scam to another. What are the thoughts inside his head? The forever quiet Prime Minister finally obliged us when he issued a statement on “Coalgate” on August 27 and put the blame on his predecessors and the CAG, for coming up with an estimated loss to the nation of Rs 1.86 lakh crore.
The policy of the government allocating coal blocks for free was introduced in 1993, and so it was not right to blame the Congress-led UPA, felt the Prime Minister. Fair point, one must say.
But as the numbers calculated by CLSA, one of the world’s most respected stock broking and financial services group, show, a major part of the coal blocks were given away for free only after the UPA came to power in May 2004. Of the 100 coal blocks given away for free to government companies between 1993 and 2011, 83 blocks were handed over after 2003. The same stands true for private sector companies, where 82 out of the 106 blocks were allocated after 2003.
So while it might be true that the UPA did not introduce the policy, what Dr Singh cannot deny is that it was the UPA government which went about implementing it with a vengeance. The geological reserves of the coal blocks given away for free after 2003 amount to around 41 billion tonnes. The total geological reserves of coal in India amounts to around 286 billion tones, which means 14 per cent of it was given away for free.
Hence, the question that the Prime Minister still needs to answer is: Why was there a sudden increase in the allocation of blocks between 2004 and 2009, especially during his tenure as the coal minister from 2006 to 2009?
The answer might lie in the price of coal, which started to shoot up around the time the UPA first came to power. Prices shot up from around $30-40 per tonne to around $190 per tonne internationally in mid-2008. The conclusion that one can draw from this is that before 2004 it was cheap to just buy coal off the market. But after that things changed and it made more sense for companies to have direct access to coal.
The Prime Minister in his statement has also claimed that the computation of `1.86 lakh crore arrived at by the CAG can be questioned on a number of technical points.
The CAG has calculated a loss of Rs 1.86 lakh crore based on certain assumptions. It has only taken into account mines given to private sector companies for free. Those allotted to government companies have been ignored. Underground mines have also not been taken into consideration.
So these assumptions work in favour of the government. If the blocks allotted to government companies had also been taken into account, the quantum of loss would have dramatically shot up. The Prime Minister does not talk about this anywhere in his statement.
The extractable reserves of these private sector coal blocks come to 6,282.5 million tonnes of coal. This is the amount of coal that the CAG feels could have been mined and sold but has been given away for free. The average benefit per tonne of this coal was estimated to be at Rs 295.41. As Abhishek Tyagi and Rajesh Panjwani of CLSA write in their report of August 21, 2012, “The average benefit per tonne has been arrived at by first, taking the difference between the average sale price (`1,028.42) per tonne for all grades of CIL (Coal India Ltd) coal for 2010-11 and the average cost of production (`583.01) per tonne for all grades of CIL coal for 2010-11. Secondly, as advised by the ministry of coal in its letter of March 15, 2012, a further allowance of rs 150 per tonne has been made for financing cost. Accordingly the average benefit of Rs 295.41 per tonne has been applied to the extractable reserve of 6,282.5 million tonne calculated as above.”
Using this method the CAG arrived at the loss figure of Rs 1,85,591.33 crore (`295.41x6,282.5 million tonnes) or around Rs 1.86 lakh crore. Analysts who track coal believe that assuming a profit of Rs 295.41 per tonne is a fairly conservative estimate.
In fact, as has been reported elsewhere, if the e-auction prices of coal had been considered, the loss would have been Rs 11.2 lakh crore. And if the calculations had been done using imported coal prices, the losses would amount to `18 lakh crore. These are huge numbers. The total expenditure of the Government of India for the year 2011-2012 was estimated to be at around Rs 13.2 lakh crore.
Another bogey that has been raised by the sympathisers of the Congress Party (though not by the Prime Minister) is that coal is a natural resource and hence cannot be “auctioned” or sold at a market price. What they forget to tell us is that coal is a limited natural resource and hence it needs to be priced correctly and not be given away for free. If that was not the case, why does the government price products like petrol, diesel, telecom spectrum etc? These products are also either natural resources or derivatives of natural resources. Why does CIL sell coal at a certain price? Why not give it away for free?
By giving away coal blocks for free the nation has sustained huge losses. Whether it’s Rs 1.86 lakh crore or Rs 18 lakh crore is a matter of how we look at it, but that does not take away the fact that losses have been huge. Given this, the Prime Minister and the Congress Party are just following the old adage, “If you can’t convince them, confuse them.”

Vivek Kaul is a Mumbai-based freelance writer. He can be reached at vivek.kaul@gmail.com