My column for Wealth Insight on the CAG reports is here. The article is reproduced below
CAG deserves the kudos of all right- thinking Indians for raising the level of public debate
The Comptroller and Auditor General of India (CAG) is not a position most people in India have been familiar with. This changed recently when CAG reports repeatedly made headlines claiming massive loot of the public exchequer. In August, a multitude of reports hit the Parliament — all pointing out lacunae in government policy and putative losses. The government’s spin masters went to work quickly. While some attempted to show that the CAG reports overstepped their mandate, others challenged the content of reports — in particular, the attempt to quantify losses arising to the public from flawed implementation of policy. Yet others have attempted to question the motives of the CAG.
Irrespective of the outcome, Vinod Rai — the incumbent CAG – deserves the kudos of all right- thinking Indians for raising the level of public debate. Every once in a while, a leader comes along who uses the full power of a constitutional authority. The Election Commission underwent such a change under TN Seshan. I hope this continues even after Rai demits office.
Analysis is succinct yet comprehensive
CAG has released a number of reports. For want of space, I discuss only the report on Ultra Mega Power Projects (UMPP) here. The report — something I recommend all to read for its lucid and incisive analysis is available at http://saiindia.gov.in/english/home/Recent/Recent.html. If only analysts wrote as clearly and authoritatively!
The report makes several points with regard to the allocation of UMPP licences and related coal reserves:
# The government did not follow its own rules — starting with appointment of the bid consultant
# Terms of the bid were altered to suit certain bidders (in particular Reliance power or RPL, the eventual winner), by diluting requirements of ownership, investment, and experience
# Extra land was allotted despite a study to show that it was in excess. No effort was made to recover the land despite it being established that it was in excess
# Allotment of coal blocks were made — in excess of the requirement — despite having no justification or study to show the need
# The excess coal was allowed to be diverted to another project — tariff for which was already determined based on the need to buy coal. This clearly amounted to violation of bid conditions in favour of Reliance Power
# The report quotes from RPL’s own estimates which put the extra gain to the company from the allotted coal to the tune of Rs 29,000 crore It is worth recalling that Tata Power has a case pending in the Supreme Court challenging the use of coal allotted for Sasan for Chitrangi Project (as approved by the Empowered Group of Ministers, or EGOM).
The defence
RPL’s defence is simple. They are not responsible for the excess coal, that the allocation of the extra mine has been ratified by the EGOM twice — once in 2008, and again in 2012. There are also somewhat gratuitous comments suggesting that CAG’s recommendation of reviewing the allocation of coal would result in India continuing to remain short of coal.
The argument is self-serving. Of course the allotment of mines has to be a government decision! The mines belong to the public and are being allotted. To suggest that this happens without intervention of the beneficiary is to stretch credulity to the point of breaking. To assert that without the mines being allotted to RPL, India would remain short of coal is laughable. First, the mines have not yet started delivering anything. Also, there are other perfectly capable companies that can mine the coal, and would pay for it.
The government’s defence is even more pathetic. To the primary allegation of extra allotment, the ministry of power has responded that the Attorney General of India has opined that the decision of the EGOM in 2008 was “well considered” — and hence the recommendation of the CAG that the extra allotment be withdrawn, may be ignored. It begs the question on why the EGOM allotted the extra mine in the first place, and why it felt imperative to overrule the conditions of allotment. Sample this: ‘The coal produced from these mines would be exclusively used in the Sasan UMPP.’
The other points are even more wishy-washy — and have been torn down in the report of the CAG itself with arguments that seem perfectly reasonable.
Greater transparency: churn in the index
The reports will now be referred to the Public Accounts Committee, where the matter is unlikely to result in corrective action. Given that this cannot be blamed on allies (unlike the 3G imbroglio), it would result in serious embarrassment for an already embattled government.
However, it may and hopefully will, result in a new and clearer policy of allotment of natural resources, in particular coal. Short-term, this may result in even slower decision making. Our shortage of coal is likely to continue. Longer term, the challenge of allotment of scare resources — airwaves, coal and iron ore, and even concessions to operate airports and roads — is likely to become more streamlined. Clear policies will remove the politicians’ ability to “seek rent” — a polite term for extracting money from public goods. With that, infrastructure companies will be less attractive to secondary investors — as unpredictable upsides are unlikely to occur. This may result in another shake up in the index. Currently 40 per cent of the index capitalisation is from companies dependent on energy, coal, and steel — all industries benefiting from ability to influence government policy. A reduction of this number over the next decade will represent the coming of age of the Indian economy.
CAG deserves the kudos of all right- thinking Indians for raising the level of public debate
The Comptroller and Auditor General of India (CAG) is not a position most people in India have been familiar with. This changed recently when CAG reports repeatedly made headlines claiming massive loot of the public exchequer. In August, a multitude of reports hit the Parliament — all pointing out lacunae in government policy and putative losses. The government’s spin masters went to work quickly. While some attempted to show that the CAG reports overstepped their mandate, others challenged the content of reports — in particular, the attempt to quantify losses arising to the public from flawed implementation of policy. Yet others have attempted to question the motives of the CAG.
Irrespective of the outcome, Vinod Rai — the incumbent CAG – deserves the kudos of all right- thinking Indians for raising the level of public debate. Every once in a while, a leader comes along who uses the full power of a constitutional authority. The Election Commission underwent such a change under TN Seshan. I hope this continues even after Rai demits office.
Analysis is succinct yet comprehensive
CAG has released a number of reports. For want of space, I discuss only the report on Ultra Mega Power Projects (UMPP) here. The report — something I recommend all to read for its lucid and incisive analysis is available at http://saiindia.gov.in/english/home/Recent/Recent.html. If only analysts wrote as clearly and authoritatively!
The report makes several points with regard to the allocation of UMPP licences and related coal reserves:
# The government did not follow its own rules — starting with appointment of the bid consultant
# Terms of the bid were altered to suit certain bidders (in particular Reliance power or RPL, the eventual winner), by diluting requirements of ownership, investment, and experience
# Extra land was allotted despite a study to show that it was in excess. No effort was made to recover the land despite it being established that it was in excess
# Allotment of coal blocks were made — in excess of the requirement — despite having no justification or study to show the need
# The excess coal was allowed to be diverted to another project — tariff for which was already determined based on the need to buy coal. This clearly amounted to violation of bid conditions in favour of Reliance Power
# The report quotes from RPL’s own estimates which put the extra gain to the company from the allotted coal to the tune of Rs 29,000 crore It is worth recalling that Tata Power has a case pending in the Supreme Court challenging the use of coal allotted for Sasan for Chitrangi Project (as approved by the Empowered Group of Ministers, or EGOM).
The defence
RPL’s defence is simple. They are not responsible for the excess coal, that the allocation of the extra mine has been ratified by the EGOM twice — once in 2008, and again in 2012. There are also somewhat gratuitous comments suggesting that CAG’s recommendation of reviewing the allocation of coal would result in India continuing to remain short of coal.
The argument is self-serving. Of course the allotment of mines has to be a government decision! The mines belong to the public and are being allotted. To suggest that this happens without intervention of the beneficiary is to stretch credulity to the point of breaking. To assert that without the mines being allotted to RPL, India would remain short of coal is laughable. First, the mines have not yet started delivering anything. Also, there are other perfectly capable companies that can mine the coal, and would pay for it.
The government’s defence is even more pathetic. To the primary allegation of extra allotment, the ministry of power has responded that the Attorney General of India has opined that the decision of the EGOM in 2008 was “well considered” — and hence the recommendation of the CAG that the extra allotment be withdrawn, may be ignored. It begs the question on why the EGOM allotted the extra mine in the first place, and why it felt imperative to overrule the conditions of allotment. Sample this: ‘The coal produced from these mines would be exclusively used in the Sasan UMPP.’
The other points are even more wishy-washy — and have been torn down in the report of the CAG itself with arguments that seem perfectly reasonable.
Greater transparency: churn in the index
The reports will now be referred to the Public Accounts Committee, where the matter is unlikely to result in corrective action. Given that this cannot be blamed on allies (unlike the 3G imbroglio), it would result in serious embarrassment for an already embattled government.
However, it may and hopefully will, result in a new and clearer policy of allotment of natural resources, in particular coal. Short-term, this may result in even slower decision making. Our shortage of coal is likely to continue. Longer term, the challenge of allotment of scare resources — airwaves, coal and iron ore, and even concessions to operate airports and roads — is likely to become more streamlined. Clear policies will remove the politicians’ ability to “seek rent” — a polite term for extracting money from public goods. With that, infrastructure companies will be less attractive to secondary investors — as unpredictable upsides are unlikely to occur. This may result in another shake up in the index. Currently 40 per cent of the index capitalisation is from companies dependent on energy, coal, and steel — all industries benefiting from ability to influence government policy. A reduction of this number over the next decade will represent the coming of age of the Indian economy.
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