Chimpanzee Ai knows what zero means, but does Chidambaram?
How did a numerate finance minister like Chidambaram come to the conclusion that gifting away 14 percent of the country's coal reserves means zero loss?
Tetsuor Matsuzawa is the director of the Primate Research Institute at Kyoto University in Japan. Among other things, Matsuzawa has taught a chimpanzee named 'Ai' to recognize the number zero.
As Alex Bellos writes in Alex's Adventures in Numberland, "Ai had mastered the cardinality of the digits from 1 to 9...Matsuzawa then introduced the concept of zero. Ai picked up the cardinality of the symbol easily. Whenever a square appeared on the screen with nothing in it, she would tap the digit."
So human beings are not the only ones to understand the concept of zero and what it means these days. Even chimpanzees do.
But one individual who does not seem to understand the concept of zero is Finance Minister P Chidambaram. He said on Friday that the government of India did not incur any losses by giving away coal blocks for free, while the Comptroller and Auditor General (CAG) of India put the losses at Rs 1,86,000 crore.
"If coal is not mined, where is the loss? The loss will only occur if coal is sold at a certain price or undervalued," said Chidambaram. So what he essentially meant was that the government incurred zero losses by giving away the coal blocks for free.
Let's go into some detail to try and understand why Chidambaram does not understand - or pretends he doesn't - the concept of zero, his education credentials of having studied at Harvard Business School (HBS) notwithstanding. But then, even George Bush studied at HBS.
Between 2004 and 2011, the government allocated 218 coal blocks to private sector and public sector companies (including ultra mega power projects). Of these, the major allocations were made between 2004 and 2009 with only two allocations being made in 2010 and 2011. Twenty-one allocations made during the period have since been cancelled.
These coal blocks were given away for free. This was done in order to increase the total coal production in the country. The government-owned Coal India Ltd, which accounts for 80 percent of the total coal production in the country, hasn't been able to produce enough to meet the growing energy needs of the country.
Between 1 April 2004 and 31 March 2012, the production of coal by Coal India has increased by just 65 million tonnes to 436 million tonnes. This means a growth of 2.3 percent per year on an average.
Hence, to increase the overall production, the government gave away coal blocks for free so that power plants, including captive plants, are not starved of coal.
The CAG put the losses on giving away these blocks at Rs 1,86,000 crore. They used a certain methodology to arrive at the figure. First and foremost the blocks given to the public sector companies were ignored while computing losses. Secondly, only open-cast mines were considered while calculating these losses, underground mines were ignored.
The coal that is available in a block is referred to as geological reserve. But due to various reasons, including those relating to safety, the entire coal cannot be mined. What can be mined is referred to as an extractable reserve. The extractable reserves of these blocks (after ignoring the public sector companies and the underground mines) came to around 6,282.5 million tonnes. The average benefit per tonne was estimated to be at Rs 295.41.
As Abhishek Tyagi and Rajesh Panjwani of CLSA write in a report dated 21 August 2012, "The average benefit per tonne has been arrived at by first, taking the difference between the average sale price (Rs 1,028.42) per tonne for all grades of CIL (Coal India Ltd) coal for 2010-11 and the average cost of production (Rs 583.01) per tonne for all grades of CIL coal for 2010-11. Secondly, as advised by the ministry of coal vide letter dated 15 March 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 tonnes calculated as above."
Using this very very conservative methodology the losses were calculated to be at Rs 1,85,591.33 crore (Rs 295.41 x 6,282.5million tonnes) by the CAG.
These coal blocks, after being handed over for free, have been producing very little coal. Guidelines issued by the coal ministry call for captive blocks to start production within 36 or 42 months. According to CAG, these blocks were producing around 34.64 million tonnes of coal as on 31 March 2011. This is minuscule in comparison to the extractable reserves of 6,282.5 million tonnes that these blocks are supposed to have.
The fact that there has been very little production of coal is what Chidamabaram was referring to when he said that if coal has not been mined, how can there be a loss?
But this is a specious argument to make and in no way takes away the fact that the government of India gave away coal blocks for free. The CAG needed a method to calculate the losses on account of this. And it went about it in the best possible way. It essentially assumed that if the government had sold the coal that could be extracted from these mines it would have made around Rs 1,86,000 crore. In fact, by not taking into account the blocks given to public sector companies and and the underground mines, CAG underestimated the quantum of the loss.
The CAG can be criticised for not taking the time value of money into account. But the moot point is that whatever the assumptions made to calculate the losses, the resulting number would have been very big. And that is something that the government cannot shy away from.
Chidambaram is basically trying to confuse us by mixing two issues here. One is the fact that the government gave away the blocks for free. And another is the inability of the companies who got these blocks to start mining coal. Just because these companies haven't been able to mine coal doesn't mean that the government of India did not face a loss by giving away the mines for free.
All this does not change the fact that between 2006 and 2009 the Congress-led UPA government gave away 146 coal blocks to private and public sector companies for free. These blocks had geological reserves amounting to a total of around 40 billion tonnes of coal.
The CAG, in its report, points out that India has geological reserves of coal amounting to around 286 billion tonnes. Of this nearly 40 billion tonnes, or nearly 14 per cent, was given away free.
If Chidambaram still feels this means zero losses, then I guess we will have to redefine the entire concept of zero and mathematics. And this, during a time when even chimpanzees have started understanding the concept of zero.
Vivek Kaul is a writer and can be reached at firstname.lastname@example.org