India’s policy of allocating coal mines without auction may have cost the government 1.86 trillion rupees ($33 billion), the state auditor said in its final report of mining losses to the exchequer.
The Comptroller & Auditor General of India’s assessment, presented in the parliament today, said the mines gave undue benefit to companies including Jindal Steel & Power Ltd. (JSP) and Tata Steel Ltd. A Feb. 28 draft, which included state-owned companies, estimated the loss at 10.7 trillion rupees and triggered a probe by the Central Bureau of Investigation.
The report comes at a time when the government is battling a series of graft charges that have slowed down decision making and impeded reforms. Prime Minister Manmohan Singh, who was in charge of the coal ministry for part of the period under review, has been personally blamed by opposition parties for the loss.
“It’s over-simplification of mining valuations,” said Debasish Mishra, a senior director at Deloitte Touche Tohmatsu India Pvt. “One can’t compare the valuation of an operational mine with an unexplored mine as the risks are exponentially high at the beginning. Whichever mines were allocated for captive use to companies had no reliable data on reserves.”
The state auditor’s report on issuance of phone permits sold in 2008 had led to India’s biggest corruption probe and the arrests of government and company officials, and a cabinet minister.
India began allocating coal mines to companies for their own use in 1993 and gave away 194 blocks with reserves of 44.4 billion tons. Almost half these reserves, spread across 142 blocks, were explored, the auditor said in the report.
“There couldn’t have been a more transparent method of allocating coal blocks at that time,” Coal Minister Sriprakash Jaiswal told reporters today in New Delhi. “It was the need of the hour to involve the private sector to boost coal production, as Coal India alone was unable to meet the rising needs.”
State-run Coal India Ltd. (COAL) is the world’s biggest producer of the fuel.
Of all the coal blocks allocated for captive use, only 30 have started production. Only one among the 57 blocks the state auditor took up for audit began production, Jaisal said.
The auditor estimated a gain of 295.40 rupees a metric ton and multiplied the number with the reserves at the captive mines. The estimate of gain was reached by taking the difference between the average price of coal and the average of cost of production at Coal India’s mines in the year ended March 31, 2011.
The estimate considered only open-cast mines. It counted 73 percent of the reserves at open-cast mines and 37 percent of reserves at mixed mines, according to the report.
India implemented an auction policy for the allocation of coal mines in 2010. The coal ministry subsequently prepared a list of 54 coal blocks with reserves of 19 billion tons for captive allocation. Some of these blocks will be auctioned and other given away to state-run miners, according to the coal ministry’s web site.
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