Ministry of Coal Shuns CAG’s Observations on E-Auction Of Coal Mines

Ministry of Coal Shuns CAG’s Observations on E-Auction Of Coal Mines

“I am always open to criticism…rather I welcome it, provided the criticism is based on facts,” the power, coal, mines and RE minister, Piyush Goyal has often been heard saying.

However, the recent findings of India’s apex audit body—the Comptroller and Auditor General of India (CAG) on the government’s new process of E-Auction of Coal Mines, where the auditor has pointed out a host of systematic and procedural gaps, is being seen as a criticism by Goyal’s ministry of coal as the one that is “factually incorrect.”
Senior government officials call these observations by the CAG as “faulty calculations.” Let us look at the observations by CAG and the objections by MoC to these findings:

According to government officials, the fundamental objective of any audit is to see whether any existing provision or any guideline has been violated and if this has happened, than what is the consequential financial loss to the exchequer.

However, officials said that nowhere in CAG’s report, the auditor has even once mentioned if any guideline has been violated.
“In the CAG report, the auditor has merely given suggestions that if we would have done things a particular way, there could have been a possibility of the results being better,” said an official.
Interestingly, the CAG has rather, while pointing out anomalies in the E-auction process of the coal ministry, appreciated “the efforts made by the Ministry of Coal in planning and implementing a new paradigm of allocation of natural resources within a short span of 5 months of the Supreme Court’s Judgement cancelling the allocation of 204 coal blocks in September 2014.”
Another important point to be noted here, according to ministry officials, is that “in any audit, it is mandatory to point out what is right and wrong….CAG  has not done that… nowhere in its entire observations has the CAG mentioned that any law has been broken, what procedures have not been followed…and nothing of that sort is mentioned in the report.”

The first point that the CAG has raised is that there is a loss of Rs 381.83 crore in valuation of coal mines. It’s logical when the ministry contests this observation with a simple reasoning that if there is an open auction, how does the valuation by MoC matters. “Anyone who will come and bid will do his own evaluation and compete and get the mine…so we fail to understand that how does the valuation of MoC matters,” questioned an official, adding that the conclusion have been made based on limited conceptual understanding of the process.

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The second loss/notional loss as per the auditor is of Rs 1000 crore where they say that the valuation of mine was don on the basis of regular coal and not washed coal.

CAG has contended that washed coal should have been used for valuation as it is provided for in the mining plan. However, the ministry contests that in the decision of the Cabinet Committee of Economic Affairs (CCEA), no distinction was made between washed coal and normal coal.

“The CCEA had clearly stated that the notified price of Coal India shall be used for valuation of coal blocks…the notified price is of raw coal or unwashed coal…the violations would have come in case any other price was used other than the one notified for valuation, so where is the violation?, asked the official.

Surprisingly, the notified price of Coal India which is applicable to all consumers for this particular grade of washed coal has not been used by the CAG for the valuation purposes.

Sources revealed that CAG stance has been that the MoC could have gone back to the CCEA, treated this as washed coal, re-evaluated it and then used it.

Interestingly, MoC said that even if it had gone back to CCEA, the value would not have been what the CAG has indicated because there way of determining the value is that they have taken the price negotiated between two PSUs (Coal India and SAIL)..… It is like contenting that a bottle of water which has an MRP of Rs 20 should be valued at Rs 50 because two companies have come to an agreement to buy and sell it at Rs 50.

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“Can you determine the value based on a negotiated price or should the market price should be the real price…and the market price can emerge only through an auction process, which is what exactly the MoC did..,” the official added.

Stating that this loss of Rs 1000 plus crore is incorrect, government sources said that even if they had taken it as washed coal, the calculations that they have done are wrong. “When you wash coal, the value of the wasked coal goes up but the volume comes down, so you cannot take the original volume for the purpose of calculations’…But CAG has not done that and has taken fixed volume.”

“So this is a case where someone who does not understand how coal ministry functions, calculates on their own on a notionally determined price and say there is a loss…even for the sake of argument, if I accept all what CAG has said, ultimately the companies who are going to bid and if they are going to use it as washed coal, how does it matter that we put a value to it…it is the company that is bidding whose valuation will matter.”’

“Either you doubt that the process of auction was rigged, which the CAG has not said in this case…the fact remains that there are multiple bidders, who bid multiple times and came to a particular value,” officials revealed.
Another objection raised by CAG is on the ranking and qualification of bidder. In a particular case, the CAG observe that the process was such that MoC eliminated 50% and hence there was not adequate competition.
It may be noted here that on this clause of the tender document that limited the number of technically qualified bidders to top 50%, some companies even challenged this particular clause in the Delhi High Court.
The Court upheld the MoC’s process and noted that the auction process has worked out well and said that “the process by itself does not appear to us, to be arbitrary or irrational and there is also no allegation that the auction process is designed to favour any particular bidder. However, why CAG still maintained this, is anyone’s guess.
What Next: Amidst these observations made by CAG and the countering with facts by the MoC, it will now be the Parliamentary Accounts Committee (PAC) will look into the claims and counter claims.
Anupama Airy
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Anupama Airy

Founder and Editor at EnergyInfraPost
Independent Journalist and Energy Expert.​ (Worked with leading mainline financial and national daily for 23 years.​)​ Also, Guest Contributor with busines​sinsider.in
Currently, Writing a Book for Penguin India Titled Greased Pole:How Politics and Lobbying Stifled India’s Energy Dreams. The author can be reached on anupama.airy@gmail.com (9810661825)​
Anupama Airy
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