(M.K. Venu is Executive Editor of Amar Ujala publications group)
The outcome of the first round of the government's auction of coal mine is quite positive as 21 coal blocks will yield over Rs.1 lakh crore. It is estimated that the entire 214 coal blocks cancelled by the Supreme Court will yield upward of Rs 7 lakh crores. Of course, this demonstrates that the UPA's opaque and arbitrary coal allocation policy was a disaster as captured in the report of Comptroller and Auditor General (CAG) Vinod Rai.
Now, it appears, Vinod Rai's calculation of the notional loss of Rs.1.86 crore for some 50-odd open-cast coal mine blocks given away through the notorious screening committee process was bang on.
However, Rai some months ago publicly admitted that he did not have the adequate manpower resources to audit over 70 coal blocks directly allotted to state public undertakings (SPUs) by the governments of Madhya Pradesh, Chhattisgarh, Jharkhand and West Bengal. These also form part of the total of 214 coal blocks cancelled by the Supreme Court last year.
According to Rai's calculation, every one million tonne of coal reserve given away through the Centre's screening committee process caused a loss of roughly Rs 29 crore. If this is taken as a benchmark for the coal blocks given away free to the State PSUs in Madhya Pradesh, Chhattisgarh, Orissa, Jharkhand and West Bengal, the losses worked out to several lakh crores of rupees in addition to what had been calculated by the CAG. It is after adding these that the NDA government is claiming it will earn more than 7 lakh crores after auctioning all the 214 blocks cancelled by the Supreme Court.
So the truth is, several state government PSUs, many in states governed by the BJP, had also given away juicy coal blocks to the private sector for free under joint venture schemes which the Supreme Court has termed as a gross violation of the Coal Mines Nationalisation Act. These were rightly cancelled by the top court's judges.
Therefore the BJP has no real reason to gloat about the UPA's disastrous coal allocation policy. The state governments under the BJP had been equally disastrous in causing a loss to the exchequer which the CAG, self-admittedly, had no resources to audit. Vinod Rai is on record admitting this in a letter to Ashish Khetan of the Aam Aadmi Party (AAP).
The good news is that the NDA government's elaborate auction process for all the 214 blocks will now bring transparency to the coal block allocations and the state governments will receive the bulk of the auction proceeds, including royalties, over the next 30 years. By a rough calculation, state governments where coal blocks are located will get a little over Rs.30,000 crore every year to be divided amongst themselves based on the share of coal blocks.
This is a great deal for the states which can use such funds in innovative ways. This course correction now adopted by the political class is a result of the anti-corruption movement, especially around resource allocation, which was resisted by establishments at the Centre and States for many years. The UPA II was guilty but the non-Congress State governments were equally complicit. This perspective must not be lost sight of.
The NDA has completed the auction of 21 blocks which have mostly gone to steel and cement companies where coal is a major input. In all, 102 blocks are being auctioned this year. The most tricky part of this exercise is that over 75% of these blocks will be assigned to firms producing power.
For their mining rights, the NDA has followed a method of auction which differs from Rai's philosophy of revenue maximization as the primary objective.
Instead, Coal Secretary Anil Swarup has rightly argued that the main objective of auction for the power sector is to deliver electricity to the people at an affordable rate. So contrary to Rai's methodology, NDA has adopted a reverse auction model where the power producer bids for the coal block based on the cheapest power tariff that it is willing to charge the customer . This becomes necessary as electricity will be delivered at regulated tariffs from now on.
Earlier, there was a huge policy lacuna wherein some companies got coal blocks free but sold electricity at market price of some Rs 6 to Rs 8 per unit to the Power Trading Corporation. This loophole is being sought to be plugged.
The key to the success of the power sector in India is that coal -fired electricity has to be delivered at Rs 2 to Rs 2.5 per unit. The political economy of the power sector is such that 90% of India's population cannot afford power at rates charged in many big cities today. Today power is available in India but people in UP, Bihar and other poor states don't want to buy it as it is too expensive. Thankfully, this reality has been factored in by the new coal auction methodology for the power sector.
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