NEW DELHI: India’s first auction of coal blocks will bring out sharp differences between calculations of the government and the national auditor, whose draft report estimated that companies which were allotted blocks free of cost received a benefit of 10.67 lakh crore.
The coal and power ministries are trying to work out a system to assess the price for the blocks to be auctioned, while the Comptroller & Auditor General (CAG) simply multiplied the estimated reserves in each block with CoalIndia’s market price for that particular grade, government officials said.
The coal ministry is in the process of appointing a consultant to evaluate the base price for 38 coal blocks that will be bid out to steel, sponge iron, cement and surface gassification units, they said.
Unlike the CAG, the coal ministry does not assume that 90% of coal in each block can be extracted, nor does it think that the cost of mining is the same for each block.
Coal ministry officials say that barely 40-45% of the reserves can be extracted in an underground mine while in an open-cast operation it would not be more than 80%.
The ministry has told the power ministry that cost of production from each block depends on many factors and ‘varies to a large extent’ even if they are in the same area.
Cost of production from mines depends on factors such as size of the acreage, commercially extractable reserves, technology of extraction, land cost, surface features, rehabilitation and resettlement requirements and availability of infrastructure, the coal ministry said in a letter to the power ministry.
This is contrary to the CAG’s method of estimating the cost of production by using the extraction cost in a similar mine of CIL. The difference between CIL’s market price and extraction cost was multiplied by 90% of expected reserves of a block. The CAG recently said its reports and estimates are prepared after a thorough process, and based on reliable data.
A coal ministry official told ET the government may use the same logic in its defence when the final CAG report is made public.