Economic Highlights

New Delhi, 24 August 2012

Scams & Still Counting

PUBLIC MONEY, PVT PROFIT

By Shivaji Sarkar

The number of scams goes on increasing. The Comptroller and Auditor General (CAG) is only adding to the count. In a week it has come out with four major cases of swindling of public funds – coal blocks, ultra mega power projects, GMR-DIAL airport deals and iron ore sales.

The latest iron ore deals, CAG says, has cost the nation Rs 2000 crore. The Steel Ministry also agrees that iron ore was sold at low prices and the loss is estimated at the given figure.

The loss to the public exchequer is estimated at over Rs 3 lakh crore. The Government contests the figures and has even challenged the CAG’s methodology. But none has denied that there has been large favouritism and the allottees have made major gains.

The coal scandal has become more a political issue as the figure of Rs 1.85 lakh crore is indeed staggering. This, however, is a revised figure. Earlier the CAG figure was above Rs 10 lakh crore for 142 coal blocks. So the way it is being contested may not portray the entire reality. The beneficiaries of coal block allocation are said to include Essar Group, Jindal, Adani, ArcelorMittal and Tata Steel.

Coal Minister SriPrakash Jaiswal says that the blocks have not started production so the figures are more notional. But the provisions of allotment states that if within a stipulated period the production does not start, the allotment would be cancelled. There is a silence on this crucial issue.

Who is involved and who not are other questions that people would certainly want to know. Whether the BJP’s demand for resignation of the then Coal Minister (now Prime Minister) is correct or not could be debated. The precedent of resignations by other ministers for involvement of their ministries in 2G and other scams set the standard.

The economic decisions have their political fall-outs. Probity is expected at political levels. It sets the standards. If there are lacunae those in command are held responsible. Whether this would start new political alignments or not is a different dimension. It calls for looking at the procedures and processes. It also calls for involvement of private parties in sharing the national resources. It raises a vital question whether national resources should be prospected only by national authorities or not. For the past decade the question of private involvement has become suspect.

Importantly, this raises vital questions. Is the process of privatisation itself a faulty process? Can the country not trust its private operators? Was it too much too expect the private sector to function with probity and contribute to the national cause?

Before we go into the coal blocks let us examine the airport deals given to GMR-DIAL. The CAG slammed the Government for giving out the Delhi airport and its land with a potential earning capacity of Rs 1,63,557 crore to private-led operator DIAL which made a total equity contribution of only Rs 2,450 crore. With this contribution of which the private GMR-led consortium's share was Rs 1,813 crore, the Delhi International Airport Limited (DIAL) got a brownfield airport - an airport in existence and operational - for 60 years. The entire funding is coming from the people who are being charged a whopping development fee (DF) from Rs 220 to Rs 1200. It would benefit DIAL by Rs 3415 crore. The DF was approved by Civil Aviation Ministry to stem the “losses”, which are not there.

The commercial rights of land was valued at Rs 24,000 crore with a potential earning capacity according to its own estimates of Rs 1,63,557 crore. So an existing airport is given to a private party for a song and that too for 60 years. This is a classic example of how with public money national assets are privatised and benefits go out of public domain.

In the case of coal blocks even the bank guarantees worth Rs 311.81 crore were not encashed. The CAG notes that the Coal Ministry accepted in February 2012 that there were no guidelines in place for calculation of amount for encashment of bank guarantee. With clout and manipulation, if national assets are acquired virtually there is no accountability on the part of the allottees. This is the serious question the nation needs to address.

The CAG has estimated the financial benefit that will accrue to the ultra mega power project (UMPP) developer on the basis of comparison of tariff of Sasan project with that of Chitrangi (the third coal block). The overall financial benefit to Reliance Power due to impact of difference in tariff works out Rs 29,033 crore with a net present value of Rs 11,852 crore, the report said.

This apart, the report further stated that that the allocation of the third coal block - Chhatrasal - must be checked to ensure fair play. Sasan UMPP was the first domestic, coal-based ultra mega power project. The post-bid concession of allowing RPL to use excess coal from Sasan project mines in its other projects “not only vitiated the bidding process but also resulted in undue benefit” to the Anil Ambani-led firm, it noted. The auditor questioned why a third mine was allocated to Sasan project by snatching it from state-owned NTPC, when it was not established that two previously earmarked mines would be insufficient to generate 3,960 MW of power.

In most cases, the figures of CAG are not in question. So the nation can accept that its estimates in coal block allocation too would be near reality. Importantly, it is not just the figures rocking everyone’s mind. It is the methodology of doling out public resources to powerful individuals or corporates that raises doubts over the efficacy of Private Public Partnership.

Extreme low investments – or virtually none - gigantic assets are being acquired. The CAG has stopped at questioning the methodology. It does not have purview beyond that. The nation has to look at this and take a call. It needs to dump the post-1991 “reforms” and look at the possibility of de-privatising all the resources let out to various players.

The nation simply cannot allow some to acquire extreme wealth and become super rich- that too without investment of virtually a penny. This calls for a serious debate and the nation needs to set a new course where such open loot could be stopped.—INFA

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