For the first time ever, POV has a guest blogger. Hopefully this will become a regular feature. Shubhashish, friend, jouranlist and someone who is very interested in Steel and Coal as sectors sent this in. It is also cross posted on his blog. I have published this as is, not even a single comma or fullstop changed. He texted me a few minutes ago to say that the CAG letter to the PMO bolsters this post.

The CAG coal scam report. I don’t see much merit in the report. More
so, drawing parallels with the 2G scam is utterly wrong as the premise
of both the cases are completely different.

In 2G, A Raja sidetracked the boundaries of the policy, made it
first-come-first and thereby making money for himself and favouring
select companies. In the so-called Coalgate, the policy to allocate
mines based on companies allocation is an age policy. What should be
noted is how many allocations have been made.

Yes, there have been irregularities in the allocations as the
government has the power to allocate to companies it deems fit. But
pegging entire allocation as a scam is juvenile. Most of the power,
steel, aluminium, cement, etc companies in India do not have coal
blocks allotted to them. It takes years before anyone gets an
allocation.

Therefore, the targets to achieve a set power production in five year
plans have been missed consistently. It is because of this that the
government thought of auctioning the coal blocks. The proposal is
still under discussion but is likely to be passed soon.

In my opinion, saying that Rs 10 lakh crore was lost because the coal
blocks were not auctioned doesn’t hold much water. Anyway, the water
table in this country are fast depleting so I am not going to argue
much about the scam.

Auctioning of national resources is the way to cut down on corruption
and even in the case of coal blocks, the move has been under
consideration from much before the 2G scam surfaced.

What I want to draw your attention towards, is Coal India. World’s
largest coal company and a government of India enterprise which raised
mega monies last year by selling its stake to investors, including us.

Coal India, now, is no more a fiefdom of the government. Investors
have put in money and they demand fair practices so that they could
earn returns on their investments. Nothing wrong with that. However,
Coal India sells coal to companies, government and private, at below
market rates. Why? This was fine till the time it was a complete
government owned company. Not anymore.

And a few months ago when Coal India tried to increase prices and
change the way it charged customers for the coal they bought, it met
with a great resistance. The coal minister intervened and rolled-back
the price hike.

Isn’t this against the culture of free market which Coal India was
made a part of after raising money from private investors?

Also, see the trend of coal production by this Navratna company. Its
production has been dropping ever since with no solution in sight. It
is a monopoly coal supplier in India and power companies have no other
option but to buy coal from Coal India. But how can they buy coal from
the company when there is no coal available because Coal India is not
mining enough? Not only mining enough, its production is falling.

It is then the government allowed companies to import coal to meet
their requirements.

India has one of the largest coal reserves in the world and Coal India
is the largest coal company in the world. Isn’t it strange that such a
company cannot meet coal demand and companies have resorted to
importing? If there has to be an audit, do it on Coal India.

I would have termed Coalgate as a scam if most of the companies had
got coal allocations. But the fact is very different. Some companies
have got and most are still in waiting. This is the reason why
companies are importing coal. Because they do not have any.

Every companies which requires coal is in favour of auctioning. They
are ready to pay sky-high rates for coal blocks. They say at least we
will have our own coal and won’t have to suffer with the global coal
price fluctuations.

And this is the reason why the latest 5 year plan has reduced
electricity production targets. Because there is no assurance of coal
supply and global prices are high.

Auctioning coal block means your power costs will go up. The power
companies have two types of contracts, short and long term. Some part
of their electricity generation is tied up with state power
distribution companies at a previously agreed upon price. With Coal
India not meeting the demand, companies are importing and coal costs
are soaring.

It is then these power companies went to their respective state
governments to renegotiate power rates. They were shown the signed
agreement and the door.

Why will a power company set up a power plant when it knows that it
will lose money of every unit of power generated?

Yes, there might be favours in whatever coal block allocations made,
but it is time we look at the bigger picture to solve the problem
rather than bickering about what the policy was and what happened in
the past.

Auction coal blocks and break Coal India’s monopoly. Power costs will
go up for everyone. This is the price we have to pay for development.
Sooner or later. Gear up.