India Auditor Dismisses ‘Misleading’ Report on Coal-Block Losses

India’s chief auditor said a report that coal-block allocations caused the exchequer a loss of 10.7 trillion rupees ($211 billion) is “exceedingly misleading” even as the allegations disrupted parliament.

The Times of India said yesterday the government gave about 100 companies “undue benefits” between 2004 and 2009, citing a draft report by the Comptroller & Auditor General. The CAG responded in a letter to Prime Minister Manmohan Singh that the news report contained discussion notes that don’t even constitute a preliminary draft.

The allegations raised the specter of a 2008 phone-permit scandal that sparked the nation’s biggest graft probe, stalled legislation and contributed to the rout of Singh’s Congress party in a key state election this month. A former minister, bureaucrats and businessmen were charged with corruption after the CAG told lawmakers in 2010 that mobile-phone licenses were sold at “unbelievably low prices” to “ineligible bidders,” depriving the state of as much as $31 billion.

“This government is facing death by a thousand cuts,” said P. Phani Sekhar, a fund manager at Angel Broking Ltd. based in Mumbai. “Every week there is more bad news. The government’s reputation is completely in tatters.”

The newspaper report sparked protests in the lower and upper houses of parliament yesterday morning as politicians from opposition parties sought a discussion.

Loss Calculation

“This is the worst scam we’ve ever witnessed,” Prakash Javadekar, a spokesman for the opposition Bharatiya Janata Party, said in televised comments to reporters.

The auditor arrived at the loss estimate by calculating the difference between the cost of production and the selling price of coal for 90 percent of each mine’s reserves, the Times of India said. The calculation was based on the actual cost of output and the sale price at similar mines of state-owned Coal India Ltd., the world’s biggest producer of the fuel.

The report is “way off the mark” and the methodology used is “very rough and does not take into account the technicalities and cost of mining in different blocks,” Coal Secretary Alok Perti said yesterday in a phone interview. The allocation of the blocks was made in a transparent way, he said.

The companies allotted mines include state-owned NTPC Ltd., which was said to have benefited by 573 billion rupees, and Jindal Steel & Power Ltd., which gained 212 billion rupees, according to the Times of India.

‘Fallacious’ Argument

“There’s no way by which NTPC can make a windfall profit out of the coal produced” because the regulator ensures lower costs are passed on to consumers, Chairman Arup Roy Choudhury said in an e-mail. State-owned NTPC is India’s largest power producer.

The argument that companies benefited from the mines is “fallacious” because the coal hasn’t been sold in the market, V.R. Sharma, chief executive officer at Jindal Steel & Power’s steel division, said by phone. The mineral was used “for making steel, cement, power, which are critical to the country’s growth. We have investments four times the benefits they claim we have made.”

The Congress-led federal coalition is vulnerable to attacks by opposition politicians after the series of scams dented its popularity as the nation heads for general elections in two years. Policy making has slowed since the graft allegations tied to the sale of telecommunications licenses surfaced.

The Congress suffered defeats in two key provincial elections this month, coming fourth in its former bastion in Uttar Pradesh, India’s most populous state. An unexpected loss in Punjab underscored how the Congress is struggling to escape blame for rising prices and alleged graft.

The CAG told lawmakers in a report the phone ministry bent rules to award cellular licenses to select companies. Andimuthu Raja, then minister for telecommunications, a lawmaker, two bureaucrats and some company officials are facing trial over charges that they conspired to cause a loss to the exchequer. They all deny any wrongdoing.

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