CAG blasts government's claim of transparency in allocation

Last Updated: Fri, Aug 17, 2012 19:14 hrs

The Comptroller and Auditor General (CAG) today blasted the government’s principal line of defence against allegations of corruption in coal block allocation. The auditor said allocation of blocks without bidding would lead to financial benefits, totalling Rs 1.8 lakh crore, to private companies.

The government has been arguing that all blocks were allocated through a transparent screening committee route and that the panel had selected companies on the basis of a set of criteria. CAG, on the other hand, has said that the committee chose project applicants solely on the basis of recommendations of state governments and administrative ministries.

In its audit report on allocation of coal blocks, tabled in Parliament today, CAG has said: “There was nothing on record in the minutes of the meeting of the screening committee or in other documents on any comparative evaluation of the applicants for a coal block... The minutes did not indicate how each one of the applicants was evaluated. Thus, a transparent method was not followed.”

The coal ministry has rejected the undue-benefit allegation, raising questions on the validity of the “misleading” method adopted by the auditor to arrive at the figure.

To arrive at the figure, CAG added up the reserves of 57 blocks allotted to private companies between 2006-07 and 2010-11. It then calculated the market value of the reserves by subtracting the average production cost of Coal India Ltd (CIL) mines from the average CIL sale price.

The companies that were allotted coal mines during the period include Tata Power, Essar Power, Jindal Steel and Power (JSPL), JSW Steel, Monnet Ispat and Rungta Mines.

The government auditor cited the allocation for Rampia and Dip-side of Rampia coal blocks to highlight the lacunae in the allocation process. While 108 applications were received for the blocks, the ministry scheduled presentations of only two applicants before the screening panel. The committee, however, recommended six companies for allocation, including Sterlite Energy, GMR Energy, Lanco Group, Navbharat Power, Mittal Steel and Reliance Energy.

Coal Minister Sriprakash Jaiswal rejected CAG’s findings by arguing that undue benefit could not have been extended, as only one of the 57 blocks considered by CAG had come into production. “Comparison with CIL price to arrive at financial gain is only notional. The computation of extractable reserves based on averages is flawed, as extractability and cost of production varies widely from mine to mine,” Jaiswal said at a press conference.

He also clarified that the delay in the switchover to the auctioning method for allocation was due to conflicting views of the law ministry on the matter. The coal ministry had floated the idea of competitive bidding for the first time in 2004. The law ministry favoured amending the Coal Mines Nationalisation (CMN) Act and later amending the Mines and Minerals Development and regulation (MMDR) Act to introduce bidding. Further, in July 2006, the law ministry said bidding could be introduced through administrative instruction. The resultant confusion led to the delay, Jaiswal said.

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