Friday, August 24, 2012

Coal-Gate Scandal –Why CAG’s numbers are Wrong

(First Published by Roy Skaria in
The CAG under Vinod Rai, seems to have made a habit of leaking to the media sensational figures just before a Parliament session. And there are people who may believe the fantastic figures being quoted, from 10 lakh crores (since corrected by Vinod Rai to a "lower" figure of 186000 crores). How many question these figures?
Here is the method Vinod Rai specifies that he used to arrive at that figure: extrapolate the best yield achieved by one coal-block IF SOLD COMMERCIALLY, multiply that best annual yield by 30 years(expected viable lifespan of a block), and then multiply THAT figure by the 70 blocks that the UPA government awarded between 2004 and 2006!!
So here is the basic assumption used in Vinod Rai's calculations: if the Governmentt had mined the coal on its own instead of "giving" it out, and the yield had been 100% of the max yield achieved in one good mine in one year, then across 30 years, the loss caused is 186000 crores! Impeccable logic indeed! So using the esteemed CAG's own logic(and using his own language), Sachin Tendulkar scored 100 runs in a SHOCKING 147 balls,
which means Sachin has caused a loss of 782 runs since run potential was 147*6=882 runs! Impeccable logic indeed! :)
Never mind that ACTUAL yield in 5 years has been less than one-fifth of the average used by Vinod Rai. Also ignored is the fact that these 70 blocks were awarded not for commercial sale but for captive use by power plants. i.e. Coal mined from these coal blocks could not be sold in open market but for use in power plants. Also ignored by Vinod Rai is the fact that mining has not even started in 90% of these blocks because
environmental and financial clearance has not been given for these blocks!
 And yet, despite all this, the CAG comes out with a fantastic figure of 10 lakh crores, then revises it downwards to 186000 crores! :) And the principal opposition party calls it loot/stealing/corruption and what not, and brings parliamentary business to a halt for one whole week!
This would not be the first time that Vinod Rai has shown these brilliant accounting skills and logic! The Delhi airport "scam" is another instance. In this case, the highest per acre rate for land in Gurgaon at the peak of the real estate boom was used as a base rate, which was then extrapolated across the 4800 odd acres given to the GMR led consortium for developing Delhi airport. To this figure was added the "what-if" figure
of the revenue "lost" because the airport was being operated by a private party rather than the state owned Airports Authority of India (AAI). Total loss quoted by this brilliant accounting: 163000 crores!
Again impeccable logic?
The principal opposition party, the BJP, torn apart by dissension from within, has clung to these CAG figures to build a case against the government. Having the propaganda network in the form of the RSS, with some stunning use of the social media like Facebook, certainly helped get their message across. The RSS and other right wing organisations know very well how to use the fickle social media for propaganda: where people share articles and photos without thinking. Repeating a lie 10 times till it is accepted as the truth has been a strategy perfected by the RSS and this has been the case here as well.
The 24/7 media starved of content also sees figures like these as a heaven sent opportunity: what would Justice Arnab of Times Now do if his friends in the CAG did not leak these reports to run as "Breaking News"? What would he debate on every night?
Its time for us, the average Chimpoo on the street to apply our minds and not jump to conclusions.

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Anonymous Anonymous said...

About the DIAL Scam, true that the figure might be 1.63 Lakh crores or so, but you cannot deny the fact that the net equity infusion is only 1800Crores over 58 years for 4500 acres of land!!! and the amount the company made JUST by charging ADF, (paid by common man ) is Rs. 3500 Crores. This amount came as a post contractual benefit, which was approved by the Cabinet (not in the original land allocation contract). DIAL uses around 50% of the leased land for commercial activities, they have also classified ground operations as Non-Aeronautical Services, this too gets them enough profit, with government never interfering into it or asking them about it. As you said the CAG Clearly says 1.63 Lakh Crores is the value that could have been generated by the land if government had control over it, but we have already lost way more than 5000Crores in NON PRESUMPTIVE/REAL TIME Earnings. It is really good that CAG is atleast trying to come up with something which makes people think.

August 24, 2012 3:27 PM  
Anonymous Anonymous said...

So you're questioning the magnitude of the scam. Fair enough. Let's use the actual yield (one fifth the CAG yield, according to your post). That would lead to a revenue loss of 37200 cr. Not large enough for you ?

The crux of the scam has been
a) though coal blocks have been 'alloted' , the power so produced has been auctioned. Is that fair ?
B) post facto changes in bid conditions to benefit the winning bidder

Read more before accusing constitutional authorities.

August 24, 2012 3:28 PM  
Anonymous Anonymous said...

Sir Ji, pls don't explain those things, which are already clear for every indian. Leading party has very good track record of more than 50 yaers. Most corrupt goverment in the world.

August 24, 2012 4:21 PM  
Blogger Vijay Nadadur said...

A very good write up. Seldom do I see the use of logic or analysis on the currently on going events. Wish more people on social media had enough sense. Keep up this good work!

August 24, 2012 4:27 PM  
Blogger Shachindra Saxena said...

I think what you have stated here is total bull shit. I think you don't have knowledge of any production unit and even of any mining company.What is 100 % yield used by CAG? Please specify in your article. And also what is basis of the 100 % yield??? I think you have forgoten to read that.
And ya... You are also blogging and shouting repeatedly in this article then why are you Questioning on others who have diff. Views then you. You are really a CHAMPU :)
Also to whome it was alloted were not having any power plant or steel plant earlier.Most of the blocks are alloted to Jindal family who is close to sonia Gandhi and one is also the MP from Congress.

August 24, 2012 5:33 PM  
Anonymous Anonymous said...

Yes the CAG seems to be publishing these reports at a steady interval that's just before a session. The lead auditor in 2G gave a different report to what Vinod Rai punished.

August 25, 2012 2:43 AM  
Anonymous Anonymous said...

The Jindals don't have power or steel plants? Lol. I also thought the perceived major beneficiary was Anil Ambani. You must be privy to his relationship with Congress as well?

August 25, 2012 3:13 AM  
Anonymous Anonymous said...

This kind of calculation of presumptive loss can be extended to any extent. The basic objective of a government is not to maximise revenue at every step. It is to spend where needed, ensure development even if it is at a cost. The CAGs basic principle seems to be show every policy or decision that can imply higher cost to the government as a revenue loss. If we go by this the Petrol subsidy that has been there for years can be summed up and I am sure it would be the mother of all losses.
What if the Government had NOT made the move to auction coal in 2006 (and cause this colossal loss). No loss?

August 25, 2012 1:16 PM  
Anonymous Anonymous said...

Well written .... CAG definitely has exceeded its mandate..... Presumptive loss is just that "presumptive" not actual.... Any government decision can be questioned ..... Grant them with one thing ---- at least it was taken.... If CAG it's an efficient organisation why does it not advise the government in decisions which are required to b taken by all ministries... The auditing of any decision is the easiest job with the advantage of hindsight...

August 26, 2012 6:40 AM  

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