First, it was the air waves —an exercise that despatched a cabinet minister and top honchos of Anil Ambani’s telecom company to prison. Then the scrutiny went a few kilometres below the surface, sniffing oil and gas “leaks”. This put the gaze on elder brother Mukesh Ambani’s prized gas-producing fields. Now the Comptroller and Auditor General of India is checking out some rich coal seams.
The observations are significant. The losses are estimated at Rs 1.2 trillion on two captive mine-based power projects that were bid out and won by Anil Ambani’s Reliance Power. The allegation: the government allowed excess coal from the project to be diverted to the company’s other projects after the winning bid was announced.
Interestingly, this is not the first time that the government has had to defend its decision. The Tata group chose to act after it lost the 4,000 megawatts Sasan project, the first of the two captive mine-based projects that were bid out. It dragged the government to the high court, challenging the decision to allow the diversion of coal. The court upheld the government’s decision in April 2009. The battle continues: the Tata appeal is currently being heard in the Supreme Court. Surely, the observations made by the government’s own audit arm will bolster the Tatas’ case. But what is the government’s defence?
It has successfully argued in the past that no undue benefit has been given since the coal can be used to fuel only those projects that are competitively bid out. So, what is wrong with this argument?
The trouble is with the loose definition of “competition”. The competitors in other projects don’t have access to captive mines. What’s the difference? The cost of extraction of coal is a mere fraction of the market price. Hence, the company with access to such a captive mine need not entirely pass on the financial benefits to the consumer and yet win the bid. The results bear this out: Reliance Power’s Sasan tariff is Rs 1.19 per unit, while that of the Chitrangi project that will use coal from the Sasan mines is Rs 2.45 per unit.
To make matters worse, leading up to the bids for Sasan project, it is not as if there was no clarity on coal use. The coal ministry had argued that it should be used exclusively for the specific project. The government needs to roll back its “excesses”.
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