Now, Coal Ministry Contests CAG’s Loss Estimates

NEW DELHI: The coal ministry has contested the national auditor’s assessment that the government lost nearly R10.7 lakh crore by not auctioning 155 coal blocks during 2004-2009. The ministry has asked the Comptroller and Auditor General (CAG) to rework its draft performance audit report, giving due consideration to several external factors including cost of financing and the specifics of each mine which, inter alia, determine the cost of mining for captive projects.
According to a leaked CAG draft report, the absence of auctions benefitted 100 private and government companies, causing losses around six times the presumptive losses on 2G spectrum allocation, which CAG earlier estimated R1.76 lakh crore.
The CAG compared the cost for captive miners with the difference between cost and sale price of coal of similar grade of nearby Coal India subsidiaries (multiplied by the estimated reserves in each captive block) to arrive at its figures.
The ministry has written to CAG officials that several variables make estimating costs difficult even for mines in the same area and, therefore, a detailed geological report would be required for each captive mining project to arrive at the estimated cost of production per tonne of coal.
“Further, the cost of production of CIL mines, which has been taken into account while making the comparison, does not include financing costs, which a captive block owner will have to incur,” the coal ministry letter states. As per estimates prepared by Central Mine Planning & Design Institute (CMPDIL), the financing cost would be around R100-150 per tonne of coal depending on the project cost with debt equity ratio of 70:30.
Apart from a detailed preparation of the geological report for each captive mine, the ministry has said the cost estimation would also require the mining strategy of the company to arrive at current estimates of capital cost as well as the operating cost. “It was, therefore, indicated that it will be difficult to arrive at any reasonable and fair estimate of cost of production per tonne without comprehensive details,” the letter states, requesting these factors should be considered while the CAG recasts its draft performance audit report, seeking more meetings with the auditor on the issue.
Earlier, in a communication to the power ministry, the coal ministry had expressed its helplessness in giving the exact cost of coal production from different blocks. It said that geo-mining conditions, such as size of the property, seam thickness, mineable reserves, whether the area is geologically disturbed and also the method of extraction of coal (open cast or underground mine), stripping ratio and kind of mechanisation are the main cost determinants.
In addition, nature and surface feature of land, the amount of rehabilitation and resettlement work and availability of infrastructure near the project site also alter cost. The same argument has been presented to CAG in the latest letter.
At a media interaction, coal minister Sriprakash Jaiswal had said captive coal blocks were allotted under a policy being followed by successive governments for the past several years.
While the debate on the cost of coal production from captive blocks is on, the coal ministry is set to introduce auction of coal blocks in a couple of months. This will eliminate any chances of companies making windfall gains as those with the best bid would get the block.
Since 1993, 216 coal blocks have be allocated to eligible public and private companies (into power, steel and cement production) under the Coal Mines (Nationalisation) Act, 1973. Out of these, 24 coal blocks have been de-allocated due to undue delays in bringing the blocks under production within a specified period of time. So, the number of net captive blocks at present stands at about 197 blocks with 50 billion tonnes of reserves. However, so far only about 28 such blocks have started production and are mining just over 30 million tonnes of coal against potential of over 200 million tonnes.