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Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster
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Coalgate: Getting more messy 
(Thu, 16 Jan Pre-Open) 
 
It was dubbed as the largest scam in India's history. The Comptroller and Auditor General (CAG) estimated a loss to the exchequer at about Rs 1856bn. Several large corporates were involved. Even the Prime Minister's name was dragged into it. We are taking about the coal block allocation scam, colloquially called as Coalgate. It has been two years since the scam hit the headlines. The government seems to have finally decided that something has gone wrong.

According to a leading financial daily, one of the 'solutions' that is being proposed, is to cancel all the coal block allocations that have been made to private players. The CAG performance audit covered the period between 2005 and 2010. A total of 64 blocks were allocated during this time to private parties, free of cost. The process followed was also quite arbitrary. All of these blocks are now under the scanner. In fact the government has mandated the CBI to investigate all the allocations since 1993!

Is it a good idea to cancel all the allocations in the same way the 2G licenses were scrapped? According to former coal secretary P.C Parakh, sweeping cancellations may have serious implications for a nation. This is because India is still a net importer of coal. A far better way, as suggested by some, would be to auction all the blocks. This would help to quickly determine the market value of the same. The original allottees should then be allowed to match the highest bid. If they do, then they should be allowed to keep the block by paying the discovered price.

This would certainly weed out all those who were looking to profit from the sale of the free blocks allocated to them. The serious players on the other hand, would still get the blocks that they want. If they have invested in power assets linked to these coal blocks they can recover their costs via higher electricity tariffs. This would certainly be a fair and transparent process. As per the CAG report, very few of the allottees have invested in any kind of end-use facilities. However that is no reason to penalize every stakeholder involved.

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