Modi govt should work on CAG alert on coal block auction before it becomes a scam

The CAG was carping in its criticism of the UPA government’s policy of granting coal mining rights based on the opaque recommendations of a so-called screening committee. It estimated the resultant loss to the exchequer at Rs 1,86,000 crore or more, the figure that bore an eerie sameness to the 2G loss.

 Modi govt should work on CAG alert on coal block auction before it becomes a scam

The CAG views were endorsed by the Apex Court later on following which the NDA II instituted an online system of e-auction of coal blocks. While auction is indeed transparent, there were genuine fears which the CAG has now articulated. First, the farce of same bidder resurfacing in the same bid this time around as a joint venture partner with another person and the needless cap on number of bidders. This can be overcome if the government tightens the norms in this regard and reads the riot act to behroopiyas or chameleons, if I might say so.

But the second criticism is more scathing, the one that can baffle anyone. The reserve price is fixed based on the net present value (NPV) of a mine. How on earth to fix it accurately when mother earth in her munificence hides a lot of natural resources? Satellite imaging is one solution but experience shows even powerful satellites with high resolution cameras with ability to penetrate multiple layers of the earth surface can be fooled. This then is one of the technical issues that doesn’t lend itself to easy resolution. The CAG rightly apprehends that there could be undervaluation in view of this handicap resulting in lesser bid price than warranted in hindsight.

While science and technology can be counted upon to find solutions eventually for seemingly intractable problems, for the time being the government can try either or both of the following two courses:

1) Claw back clause; and

2) Revenue sharing

Claw back clause was used by the Margret Thatcher government in the eighties when it went for gung-ho privatisation of state monopolies. Under the clause in a contract, the government gets the right to demand its pound of flesh if later events reveal greater value to what has been sold upfront in a transparent auction. This is only fair because when things do not reveal themselves transparently at the stage of auction, one has perforce got to revisit the issue when the mine for example is worked commercially.

To draw an analogy from the world of surgery, sometimes angiography reveals just two blocks but the surgeon doing the bypass may find a third or the fourth block which he will have to bypass as well. Like a heart revealing itself more fully when the rib cage is cut, a mine too reveals itself more fully when it is penetrated.

Revenue sharing could be another solution like in telecom spectrum. In addition, to a much smaller upfront auction payment, the highest bidder may be called upon to pay a percentage of his sales to the central government in addition to the royalty to the state government concerned.

It should be heartening for the present NDA government that the CAG has not blown the whistle against a scam or a suspected scam. All that it has done is to alert the nation to the possibilities of loopholes and deficiencies in the supposedly fool-proof regime of auctions. The opposition would of course bay for the government’s blood if only to spite it. But what the Modi government must do is to take the CAG critique in the right spirit and find solutions including on the lines suggested herein.

In this noble endeavour, it would do well to co-opt the opposition parties. That would blunt some of their criticism and anger.

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Updated Date: Jul 29, 2016 17:18:21 IST