Dubious Defence of Coal Block Allocations- Arun Jaitley

Dubious Defence of Coal Block Allocations (28/8/12)

- Arun Jaitley
Leader of Opposition, Rajya Sabha

Source : The Hindu
http://www.thehindu.com/opinion/lead/article3828649.ece

The Parliamentary stalemate continues on one of the greatest corruption scandals in Indian history. Allocation of natural resources has been a subject matter of public debate in the last two decades, particularly with the entry of private sector in infrastructure development. Mineral is an important natural resource. The private sector has a great role to play in development of the mineral-based industries. However, the policy of allocation of these natural resources has been discretionary, thereby leaving ample scope for allocation on account of corrupt and collateral motives. It is, therefore, important that aware of the characters of polity and governance, discretions be eliminated and objective criteria be introduced.

Most tangible resources such as minerals, spectrum, oil and gas must only be allocated through a competitive bidding mechanism. The discretionary allocation of 2G spectrum resulted in scam of disproportionate magnitude. It is now proven that Rs. 1658 crores fixed for an all-India license spectrum in 2008 was not the market value of the spectrum then. Under adverse market conditions, government itself in 2012 has fixed the base price for 2G auction at Rs. 14,000 crores.

There has to be an equitable balance between the interests of public exchequer and the optimum use of natural resource for economic development.

Whispers with regard to misdemeanours in the allocation of coal blocks have been heard in the last few years. The government took a correct policy decision on June 28, 2004 that competitive bidding be introduced in the coal block allocation policy. For most of the next five years the Prime Minister was the Coal Minister. The exploitation of coal blocks allotted between 2004 and 2012 is negligible. For most of these coal blocks, statutory and environmental permissions have not been given. The Prime Minister’s argument that pending change of policy to competitive bidding, allocation was necessary for the growth of GDP is eyewash. None of these coal blocks have contributed to the GDP. They have only contributed to the huge valuation of the private sector allottees and a corresponding opportunity and real cost to the Public Exchequer.

The Prime Minister’s alternative defence is that his government was handicapped by the Opposition from the coal and lignite states to competitive bidding. In any federal polity, it is legitimate for the states to be concerned about the development of power production in their own states. Mineral producing states have always been concerned about the minerals mined in their states. The Prime Minister overlooks the fact that coal as a Major Mineral is in the domain of the Central Government. His government admittedly overruled the states in 2006. The present MoS, Coal Shri Prakash Jaiswal admitted in the Parliament on December 21, 2009 that the majority of the states had agreed to the competitive bidding process. Thus to shift the blame to the states is a very poor alibi. Federalism cannot be blamed for the corruption of the UPA.

The Prime Minister’s statement is an assault on Constitutionalism and constitutional authority. Instead of respecting the observations of the CAG and taking remedial action the Prime Minister has evolved a logic, which is in defiance of ethical governance. His government’s policy is to subvert the institutions but if they assert themselves to attack them.

The Prime Minister has no answer for the fact that despite the initial policy decision of June, 2004 it was the PMO which circulated a parallel note on September 11, 2004 highlighting the drawbacks in the decision of competitive bidding.

It was the Law Ministry, which delayed the competitive bidding by first giving the opinion that administrative instructions were enough to switch over to competitive bidding. They then suggested an alternative that the MMDR Act be amended. Over two(2) valuable years were wasted and finally, when the MMDR (Amendment) Bill was approved by the Parliament on 09.09.2010, the UPA government took 17(seventeen) months before it could notify the same. The tenders of competitive bidding have not been prepared yet as the Government was so overenthusiastic in continuing the discretionary process in allotment. When vested interests realized that doors of discretion were about to be closed, they queued up for allotments through the Screening Committee mechanism.

The Prime Minister’s final defence that the Screening Committee mechanism was fair and transparent is repelled by an observation of the CAG in Paragraph 4.1 of its report. The CAG has stated-

“It was also noted that the Screening Committee recommended the allocation of coal block to a particular allottee/allottees out of all the applicants for that coal block by way of minutes of the meeting of the Screening Committee. However, there was nothing on record the said minutes or in other documents on any comparative evaluation of the applicants for a coal block which was relied upon by the Screening Committee. Minutes of the Screening Committee did not indicate how each one of the applicant for a particular coal block was evaluated. Thus, a transparent method for allocation of coal blocks was not followed by the Screening Committee”

Ordinarily, Parliament is the forum for debate on the issue. The PAC is the forum where CAG recommendations should be considered. Our experience of the recent past in relation to the CAG recommendations in the 2G spectrum allocation have convinced that the ruling party has decided to subvert the Parliamentary accountability available through the PAC. The PAC has been effectively made non-functional on that issue. Parliamentary obstructionism should be avoided. It is a weapon to be used in the rarest of the rare cases. Parliamentary accountability is as important as Parliamentary debate. Both must co-exist. If Parliamentary accountability is subverted and a debate is intended to be used to merely to put a lid on Parliamentary accountability, it is then a legitimate tactic for the Opposition to expose the government through Parliamentary instruments available at its command. Presently, a national debate on allocation of natural resources is on. Left to this government, they would have distributed these resources for collateral purposes to their own favourites.

The Prime Minister must own full and real responsibility. Let him cancel these 142 discretionary allocations, put them on auction and test whether they had been allocated at a fair price.

The Allocation of 142 Coal Blocks- Arun Jaitley

THE ALLOCATION OF 142 COAL BLOCKS

- ARUN JAITLEY
Leader of Opposition (Rajya Sabha)

The arbitrary and discretionary allocation of 142 coal blocks is the latest albatross round the neck of the UPA Government. The arrogant and despotic government did not realize when the allocations were made that it would be held accountable for each of these coal block allocations.

The Comptroller and Auditor General has based its’ report on the allocation of these coal blocks primarily on the ground that after a decision was taken to switch over to the competitive bidding system it took the government eight years to implement the said decision. During this eight year period 142 coal blocks were allocated to private entrepreneurs most of whom were traders and not actual users. Since the Screening Committee mechanism did not realize the actual value of the coal blocks a monumental loss has been suffered by the Public Exchequer.

The eight year delay is on account of an objection raised by the Prime Minister’s office, an incorrect opinion given by the Law Ministry, inordinate delay in drafting an amendment to the law and an inexplicable delay in implementing the amended law. Each of the reasons for delay does not appear to be bonafide.

For almost five out of the eight years the Prime minister was the Coal Minister. He was assisted by a Minister of State. The corridors of power in Delhi are full of information being provided by the then bureaucrats, the successful applicants and more particularly the unsuccessful applicants. These informations reflect a sad commentary on the functioning of the UPA Government. These information reveal

• A case of inefficiency, lack of leadership, delay in the exercise of power for colorable purpose.
• Over eight years were wasted in not implementing the competitive bidding policy so that 142 successful entrepreneurs could be arbitrarily selected.
• The Screening Committee mechanism was a farce. Individual writ of few people who were running the Government influenced the decision.
• Some of the Ministers of State did not come out with any credit. Their role in these allotments appears to be dubious.
• Successful applicants were asked to associate one or more co-allottees by the Ministry. These were inevitably the political nominees.
• Disturbing information has surfaced that a valuable public resource was being allocated arbitrarily with the underlying condition of political funding of the party in power.
• The officials in the PMO who dealt with the Coal ministry files were not unaware of what was going on.
• Many allottees were traders and not actual users.
• Several allotments have been made without the recommendation of the State Governments.

The whole process of allocation of coal blocks stinks. This raises a larger question of how the Indian State should allocate natural resources. A rudderless government suffering from policy paralysis has sought advisory opinion of the Supreme Court on this larger question. Allocation of natural resources is an issue squarely within the policy domain. Formulation of policy is an Executive function; it is not a judicial function. The Court can merely strike down a policy if it is arbitrary or unconstitutional. The court cannot frame a policy. Which tangible natural resources should be auctioned and which could be allotted on some alternative fair criteria is an issue to be decided by the Government. The courts are an institution empowered to judicially review a decision of the Government. If government formulates a policy which opens the flood gates for corruption, the courts can strike down the policy. What would happen if the courts were to advice the formulation of such an arbitrary policy?

Indian politics is passing through a crisis. The power of politics is immense but the stature of some of the men administering polity is relatively small. It bears no nexus to the extent of power that the polity exercises. As a part of the process of political and governance reforms discretions have to be minimized and eliminated. Every decision of the government has to be based on reason and rationality. Mineral is a valuable natural resource. It occupies an important space in the expansion and development of the Indian economy. Its’ allocation both in the Centre and the States through a discretionary process has led to serious charges of corruption. Recent experiences are persuasive enough for the government to legitimize the policy where such allotment of mineral as a tangible resource is made only through a transparent and open bidding system. There is no substitute for such a policy today.

It has been suggested that since the Prime Minister himself was the Coal Minister we should assume that this decision was fair. The Prime Minister’s office is a sacred institution in Indian democracy. It has to be judged by standards much harsher than those which would apply to Ministers like Shri A. Raja. If the process of allocation by the Prime Minister as a Coal Minister smacks of arbitrariness it shakes our national conscience. The onus is now on the Prime Minister to accept the responsibility for what has happened.

Suggestions that the issue should be debated only in the Parliament will put a lid on one of the greatest scandals in Indian history. We, in the Opposition, are not interested in merely the issue being talked out through a one-day debate in Parliament.

A debate is an essential ingredient of Parliament but so is accountability. If a debate is being used today to put a lid on accountability then an alternative strategy is necessary. Parliamentary obstructionism should ordinarily be avoided. However, in the rarest of rare cases, obstructionism also bring its dividends. The country lost a valuable session of parliament in December 2010 on the issue of 2G spectrum scam. However, the obstructionism led to Shri A. Raja’s resignation, charge-sheets for criminal prosecutions, a Joint Parliamentary Committee, the auctioning of the 3G spectrum and now the surplus 2G spectrum which will bring an enormous amount of revenue back to the Government.

The experience of the 2G spectrum reveals that the government used the reference of the CAG report to the Public Accounts Committee for a cover up. The Government itself has now fixed Rs.14000 crores as a base price for the 2G spectrum auction as against the price of Rs.1658 crores at which the spectrum was allotted in 2008. The PAC is not being allowed to come to the same conclusion by obstructing Members who are helping the ruling alliance. When parliamentary institutions are subverted and accountability is not permitted, the polity must invent new tactics so that the principle of accountability is not sacrificed. Debate and accountability must co-exist.

Coal in the Earth’s womb, govt’s false arguments

An article by Krishnamurthy Subramanian (Krishnamurthy Subramanian is an assistant professor of finance, Indian School of Business, Hyderabad.)

Highlights of the article re Coalgate Scam

  P. Chidambaram : “If coal is not mined, if it remains buried in mother Earth, where is the loss?” 

Projections for the future price of coal, the future aggregate demand for coal, the future market share of a particular company, among others, are necessary when one attempts to put a value on the growth opportunities. Photo: HT

In finance, we value an asset as the sum of two components: (i) the value of the asset as it is in its current condition; and (ii) the present value of the growth opportunities that can be created using this asset. Since the assets in question are the coal blocks that were sold to private entities by the government, the value of the assets in their current condition equals the market value of coal that has already been mined. In contrast, the present value of the growth opportunities from the coal blocks corresponds to the value that can be derived by mining coal in future. The first component corresponds to the book value of the assets. The sum of the first and the second component corresponds to the market value of the asset. Therefore, the difference between the market value and the book value of the asset equals the present value of the growth opportunities that can be created using the asset. The market to book ratio equals the ratio of the market value of an asset/company to its book value. Therefore, a market to book ratio that is greater than one indicates that the present value of growth opportunities is significant for the asset/company.

For most companies, the market value is considerably higher than the book value. (see table) Gujarat Mineral Development Corporation (GMDC) Ltd is into mining of coal and lignite and is, therefore, the most appropriate reference for assessing the present value of growth opportunities in the coal mining industry. As one can notice from the table, the market-to-book ratios of each one of these firms is greater than one, which indicates that the present value of growth opportunities is significant for these firms. In fact, a market-to-book ratio of 2.9 for GMDC indicates that the present value of growth opportunities in coal mining may be close to double the value of the existing assets. As a result, asking rhetorically: “If coal is not mined, if it remains buried in mother Earth, where is the loss?” is incorrect. Even if coal remains buried in mother Earth, the present value of the future earnings from mining is significant. In fact, based on the above numbers, bulk of the value may lie buried inside mother Earth.

It is not hard to understand the conceptual source for the considerable disagreement relating to the loss numbers put forward in the CAG report. As any finance professional worth his salt will mention, any exercise in ascribing a market value to an asset involves assumptions. In particular, these assumptions have to be more heroic/speculative when they relate to valuing the growth opportunities. For example, projections for the future price of coal, the future aggregate demand for coal, the future market share of a particular company, among others, are necessary when one attempts to put a value on the growth opportunities. Despite painstaking research into the drivers for each one of these variables, projecting these variables will involve some assumptions. As many analysts, those many assumptions and, therefore, that many differing values ascribed to the same asset. Therefore, disagreement about the loss numbers ascribed by CAG to the sale of the coal blocks is understandable. However, ignoring the value underlying the growth opportunities is not.

Read Full article on http://www.livemint.com/2012/08/28213317/Coal-in-the-Earth8217s-womb.html?h=D 

Congress frustration on CAG reflects in parliamentary behaviour

Congress frustration on CAG reflects in parliamentary behaviour- Yashwant Sinha


This article is addressed to all defenders of the faith who are constantly haranguing BJP to stop disruptingParliament and save Indian democracy. Public memory is short, media's shorter. A section of the media also suffers from selective amnesia. 

The Vajpayee-Ied government was the first non-Congress government which governed India for over six years. It won an election in 1999, to return to power. It did suffer the fate of all earlier non-Congress governments in 1998, but acquired stability in its next term. 

Its success led many to believe that Congress was not going to return to power any time soon. The resulting frustration in the Congress led to a complete change in its parliamentary behaviour. One has merely to look at the record of the thirteenth Lok Sabha to realise how often the Congress resorted to disruption and how flimsy were the grounds of those disruptions. Let me chronicle a few just to set the record straight and refresh the memory of the defenders of the faith. 

If frequent adjournment of the Lok Sabha due to interruptions and disorderly scenes resulted in the loss of time of 10.66% during the Twelfth Lok Sabha, it increased to 19% during the Thirteenth Lok Sabha. 

In February 2000, a circular issued by the Gujarat government, allowing its employees to take part in the activities of the RSS paralysed the business of Lok Sabha for at least 10 days. In December 2000, the House was paralysed once again for eight days when CBI filed a chargesheet against three Union ministers in the Babri Masjid case. 

A major part of the budget session of 2001 was lost because of the Tehelka sting operation. The same thing happened when the Comptroller and Auditor-General report on the purchase of coffins for the armed forces was presented to Parliament. Parliament was disrupted and George Fernandes was boycotted by the Congress in Parliament. He was described as a Kafan Chor. 

When the US forces invaded Iraq in early 2003, despite the fact that the prime minister himself made a statement expressing strong opposition to any military action in Iraq, the Congress insisted on Parliament passing a resolution condemning the US action. They disrupted the proceedings of Parliament again for many days until finally the great democrat Shri Atal Bihari Vajpayee instructed us to work out a compromise which we did. 

Only then was Parliament allowed to function. Compare Sonia Gandhi's belligerence today to the statesmanship of Vajpayee then. The examples of unprecedented corruption in recent years have been brought in the public domain by none other than a constitutional body like CAG. This has made the prime minister depart from established practice and make a statement in Parliament on August 27, 2012, criticising CAG. An extraordinary statement indeed by a person who has spent all his life as an economic administrator and should know more than anyone else about the role and responsibility of CAG. 

The defenders of the faith are quiet on this point. They never tire of reminding us that according to our parliamentary procedure reports of CAG are automatically referred to the PAC and are examined by the PAC. This is absolutely correct. So, the report of the CAG on the 2G scam came to the PAC. Indeed, this was exactly the argument given by the government to reject our demand for a JPC.     

(Read The  full article  http://www.bjp.org/index.php?option=com_content&view=article&id=8194:article-qdefenders-of-the-faith-refresh-your-memoryq-by-shri-yashwant-sinha&catid=68:press-releases&Itemid=494  ))