The coal mining controversy has become the latest corruption scandal to hit the Congress-led UPA government after it emerged that coal blocks were being allocated in an arbitrary and discretionary manner by the government to entrepreneurs rather than following the procedure of transparent, open bidding.

According to a CAG report, the selling of coal deposits without open bidding has led to a loss of about $210bn (£133bn) to the exchequer.

Read the full story on India’s coal mining controversy or coalgate allegedly involving government ministers including Prime Minister Manmohan Singh

The CAG report is critical of the allocations on three main counts – that the Screening Committee did not follow transparent and objective methods while making recommendations for coal blocks allocation; that the competitive bid that could have been introduced in 2006 was delayed; and that the delay the government made in setting out the guidelines for competitive bidding was beneficial to many private entities.

According to the assumptions and computations made by the CAG, there is a financial gain of about Rs. 1.86 lakh crore to private parties.

“The observations of the CAG are clearly disputable,” Singh said. “The policy of allocation of coal blocks to private parties, which the CAG has criticised, was not a new policy introduced by the UPA.”

The policy has existed since 1993 and previous governments also allocated coal blocks in precisely the manner that the CAG has now criticized, he added. 

Singh said CAG’s point that competitive bidding could have been introduced in 2006 is flawed too. 

This is because CAG’s premise was based on a selective reading of the opinions given by the Department of Legal Affairs, he said. 

The Prime Minister also pointed out that major coal and lignite bearing states such as West Bengal, Chhattisgarh, Jharkhand, Orissa and Rajasthan -- that were ruled by opposition parties -- “were strongly opposed to a switch over to the process of competitive bidding as it would increase the cost of coal and adversely impact value addition and development of industries in their areas”. 

On CAG’s another criticism that the government did not implement the decision speedily, Singh said: “…We could have done it faster. But, given the complexities of the process of consensus building in our Parliamentary system, this is easier said than done.”

Singh also questioned the loss to the exchequer that was included in the auditors’ reports.

“Aggregating the purported financial gains to private parties merely on the basis of the average production costs and sale price of CIL could be highly misleading,” he said.

This is because cost of coal production varies in different regions and a part of the gains are appropriated by the government through taxation. The CAG did not all this into account while calculating the costs, Singh said.

“Moreover, as the coal blocks were allocated to private companies only for captive purposes for specified end-uses, it would not be appropriate to link the allocated blocks to the price of coal set by CIL.”

If CAG’s implicit suggestion -- that the government should have circumvented the legislative process through administrative instructions, over the registered objections of several state governments including those ruled by opposition parties – was implemented, it would have been “undemocratic and contrary to the spirit of the functioning of our federal polity,” Singh concluded.

Read Prime Minister Manmohan Singh’s full speech on the coal block allocation controversy here.