The Comptroller and Auditor General (CAG) report pointed to a notional loss of Rs 1.86 lakh crore to the exchequer in allocation and usage of coal blocks.
The CAG starts its coal audit report by referring to the recommendations of the TL Sankar Committee on roadmap for coal sector reforms set up in 2005.
The CAG says that while the report had recommended increasing the coal drilling capacity to 15 lakh metres per annum, the current capacity is only 3.4 lakh metres per annum.
In an interview to CNBC-TV18, JJ Irani, member, TL Sankar Committee says CAG's claim of Rs 1.86 lakh crore loss looks exaggerated.
Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Ekta Batra.
Q: What went wrong from 2005 to 2012 in the coal sector? What is your comment on this 1.86 lakh crore number that the CAG has thrown up by way of an opportunity loss, a notional loss for the country? Is it really a correct figure or atleast a ballpark figure?
A: I am not a privy to their calculations. But to say that so much coal is available and its value is so much and therefore multiply by the per tonne basis, I think it is a very incorrect type of calculation. I must prefix my comment by saying that I am not privy to the way they have calculated. But I think this is a rather exaggerated figure.
Q: The CAG keeps speaking of normative time for coal development. I think they take it as 42 months and the international average is about four years. So, 42 months would be three-and-a-half year. Is that adequate in India for all coal mine development or do you think that in most of the cases things might get much longer?
A: To develop a coal mine it takes much longer than to put up a steel plant from the initial stages onwards. Unfortunately, in India, most of the coal is located in under forest land. The environment ministry and the coal ministry are always at loggerheads about how quickly the sanctions can be given.
You referred to the Shankar Committee. Seven years ago, we had come to the conclusion that we have tremendous resources of coal, but we are very short on planning. The only producer of coal was Coal India. They had a very, shall we say, ‘dog in the manger’ attitude. They would not let go off any of the coal blocks or did not want to. So, the Shankar Committee took the view that let them ask for whatever they want for development for 25-30 years.
Even after that, a large amount of coal blocks were leftover. These should be distributed to more efficient public sector and private sector players to develop coal. Unfortunately, that has not happened.
Q: Could you outline your thoughts with regards to Inter Ministerial Group (IMG) review meeting that starts today? What do you think would be the possible likely outcome?
A: As far as the IMG is concerned, they should be quite forthright and decisive. In India now, we have become too democratic, I might even say chaotic to cater to different views. Under such a scenario, it is very difficult to chart out a path for the good of the country.
If I may add, we have really one major source of fuel and that is coal. Others are all incipient. As far as coal development is concerned, we have the material underground, but we don’t have the will to dig it out.
Q: What were the main recommendations made by the TL Shankar Committee? What exactly were the recommendations, which if perhaps followed may not have led us to this mess? Did you recommend private mining, commercial mining scrapping off the Nationalisation Act altogether?
A: The Nationalisation Act was necessary in the early 1970s. When Mohan Kumar Mangalam, who was then the coal minister, nationalised coal, I think everyone was in favour because the coal industry was fragmented. There was a lot of corruption, mafia and so on, which by the way is still there.
Ninety eight percent of the coal resources of India were nationalised. Two percent, belonging to a private company, were left out. At that time, when Mohan Kumar Mangalam was asked why those 2% were left out, he had said that, “Those mines are being efficiently operated. I have no need to nationalise those.” Can you imagine that sort of answer being given in the present day scenario in our parliament. There will be all sorts of accusations of why those people were left out. So, I think we have now reached a stage where politics has taken over the development of the economic situation in the country.
Q: Is auctioning the way forward? Do you think it’s commercially possible for you as a user of coal to state an auction price, considering the uncertainties involved? We don’t know how the environment ministry will react, and we don’t know how much time it might take to acquire land, the quality of deposits is also wide ranging. Without this clarity, is auctioning possible? Is there a way out of this?
A: I think there is a legal hurdle. I have heard some legal experts saying that you cannot now really de-allocate because that will lead to further legal procedures. Auctioning would have been the best, if the blocks were of a virgin nature. That means they were easily available for those who wanted to buy them. But I think there are many legal hurdles.
I think what is necessary now is for the government to bite the bullet and say enough is enough and say this is what we want to do. And irrespective of what the objections are from the members of parliament, we should go ahead and do that. Look at the ridiculous scenario, we need coal, we have coal. But to fire our power houses, to generate electricity, we have to import coal. Import is atleast three times as more expensive as domestic coal.
In that situation, electricity tariffs will have to be increased. Otherwise, all the electricity companies including electricity boards will go broke. It is like something what has happened in the oil industry. So, we are really shooting ourselves in the foot.
Q: Did the Sankar Committee recommend against allocation at all? Did you make a recommendation of auction?
A: No. We did not make any recommendations of auction. Seven years back, nobody had talked about auctions. I think the recommendation was that the Central Mine Planning & Design Institute Limited (CMPGI), which is a very fine body, Central Mining Institute, would earmark those blocks which Coal India does not want or does not need. And then those blocks would be given to not only private, but to other public sector companies. It is quite clear possible, like in China, to have parallel public sector companies each in his own area, developing a mineral resource.
Q: What do you think this is currently doing to consumer or rather business sentiment at this point in time? We are talking about the repercussions that banks could face. We have something like capital goods company that has exposure in terms of orders from these particular companies, mentioned on this entire report. What do you think is the repercussion with regards to this entire scam? What would you think would be the current fall out for this possibly in the next two to three years?
A: The most serious thing would be that no further investment would be attracted, unless government wants to pump in money. I don’t think government has the money. New project would take atleast five years to take off. The projects, which are already in hand both power and coal, are stagnating. So, investment will be slow.
Investors will have to have the confidence that government means business. Only after the investment decisions are taken will there be a move towards developing our coal mines. We really desperately need them. The coal is there, maybe it is under forest land, but it requires the political will to say that we are going to get it out.
Q: Would a retrospective royalty charge perhaps be the way to go?
A: No, I think that would only confuse matter. I think it would be very unfair on those who are very few, who are developing the coal. I think anything retrospectively, once again, will finally go the legal way. I think retrospective charge is not the way to do it.
Q: What is your one-two-three thing that you would want ideally done, if Shankar Committee was reconstituted again? What would your three recommendations be? Would it be something like denationalisation, auctioning? What would your top three-four recommendations be?
A: Ofcourse denationalisation of the areas, which the Shankar Committee has pointed out are surplus. Coal India has been a bit of a block, blocking everything; they wanted everything to be kept under their purview. Members from Coal India and the Coal Ministry were members of the Shankar Committee. We had told them that you please earmark whatever you want for the next 25-30 years. Even after you do that, there are huge resources available for the country. Those have to be made freely available either to private sector or to other public sector companies. That did not happen.
Q: One of the main issues is obviously commencement of production. There are reports, which have recommended that maybe there could be a board such as the FIPB which or on the lines of the FIPB, which could be set up to monitor the production going forward. Would you agree or disagree? What would you recommend in terms of the most prudent method to monitor production?
A: One thing, which we lack in India, is governance. Anything to monitor effectively would be welcomed. But having too many regulators and too many people overseeing also causes confusion.
In my opinion, there should be, maybe in the PMO or somewhere, one authorised body that can put the will of the country down. Environment ministry, coal ministry, railways will come under the purview of such a strong administrative action, maybe under the PMO or under the planning commission or whatever. Everyone has to follow the line.
Q: Mohan Kumar Mangalam said that 98% of coal mining companies and practice was corrupt in 1973. How would you describe the allocation of the last 20 years? Was all of it corrupt; was some of it corrupt, did some of it go to deserving parties? Did everyone have to grease palms?
A: I don’t think everything went to corrupt people, a substantial portion probably did. I have no defense for those who have proved corrupt and who have amassed huge fortunes. Pleas get after them, please put them behind bards, and penalise them. But let the country move on. Don’t paralyse the country by the antics which we see now in parliament; yesterday was a real shambles in the Upper House and not make ourselves the spectacle and the laughing stock.