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Corporate Sep 1, 2012

CAG was over-conservative in its Rs 1,86,000 cr loss number

By Vivek Kaul

The Congress party seems to be hell-bent on discrediting Vinod Rai, the Comptroller and Auditor General(CAG) of India, who has put the estimate of the losses on account of the coal blocks allocation scam (Coalgate) at Rs 1.86 lakh crore.

The latest Congress politician to join the "pull Rai down" bandwagon is Digvijaya Singh. Singh told The Indian Express that "the way the CAG is going, it is clear he (i.e. Vinod Rai) has political ambitions like TN Chaturvedi (a former CAG who later joined the BJP). He has been giving notional and fictional figures that have no relevance to facts. How has he computed these figures? He is talking through his hat." (Read here)

Let's try and understand why what Singh said is nonsense of the highest order and anyone who has read the CAG report wouldn't say anything that was as remarkably stupid as this. But before I do that, let me just summarise the Coalgate issue first.

Reuters.

Between 1993 and 2011, the government of India gave away 206 coal blocks for free to government and private sector companies. The idea being that Coal India Ltd wasn't producing enough coal to meet the growing energy needs of the nation. So free coal blocks were given away so that other companies could produce coal to meet their own coal needs.

Of these blocks given away for free, 165 blocks were given away free between 2004 and 2011. The Congress-led United Progressive Alliance (UPA) has been in power since May 2004. Hence, 80 percent of the coal blocks have been given away for free during the reign of the UPA government.

This explains to a large extent why Congress leaders are trying to discredit the CAG. Before Digvijaya Singh, Prime Minister Manmohan Singh broke his silence for once, and said that the CAG report could be questioned on a number of technical points. Finance Minister P Chidambaram said there had been no losses because of free coal block allocations and then denied making the statement a little later.

The CAG report on the explains in great detail the method they have used to arrive at a loss figure of Rs 1.86 lakh crore. Hence Singh's question "how has he computed these figures?" is sheer rhetoric and nothing else. Maybe he should just read the report again.

As is the case with any estimate, the CAG made a number of assumptions (for those who have a problem with this, even the government's annual budget is an estimate which is replaced by a revised estimate a year later, and the actual number two years later). The CAG started with the assumption that the coal mined out of the coal blocks has been given away for free. This coal could be sold at a certain price. Since the government gave away the blocks for free, it let go of that opportunity. And this loss to the nation, the CAG has tried to quantify in terms of rupees, in its report.

There were other assumptions that were made as well. Only the coal blocks given out to private companies were taken into account while calculating losses. Blocks given to government companies were ignored. Personally, I would have liked CAG to take the government companies into account as well while calculating the losses, because a loss is a loss at the end of the day.

Also, transactions happen between various sections of the government all the time and the money earned on account of these transactions is taken into account. So should the losses. Out of the 165 blocks allocated since 2004, 83, or around half, were allocated to government-owned companies.

The amount of coal in a block is referred to as the geological reserve. The portion that can be mined is referred to as the extractable reserve. The CAG calculated extractable reserves of the private coal blocks to be around 6,282.5 million tonnes. This is the amount of coal that could have been sold.

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by Vivek Kaul

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