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India gov’t slammed over huge coal mining losses

India’s national auditor dealt a new blow to the beleaguered government on Friday, saying it had lost billions of dollars by failing to auction coal mining rights to private companies.

The hotly awaited report, likely to pile more pressure on Prime Minister Manmohan Singh, criticised how coal blocks were given to companies in a murky allocation process instead of being sold by open bidding.

The Comptroller and Auditor General (CAG) estimated that since mid-2004 ‘financial gains to the tune of 1.86 trillion rupees ($33.4 billion)’ had likely accrued to the private operators who won coal blocks without competition.

‘A part of this financial gain could have accrued to the national exchequer,’ it added, while failing to give an estimate for the total loss to the state in the document which was presented to parliament.

It said the problems of allocating coal rights instead of inviting bidders had been raised as far back as June 2004 when coal ministry officials had discussed the potential for windfall profits for private groups.

Since then, no policy had been formulated and 142 coal blocks have been allocated. ‘This allocation lacked transparency and objectivity,’ the CAG concluded.

Singh’s coalition government dominated by the left-leaning Congress party has been hit by a string of corruption cases since its re-election in 2009 and the latest revelations about mismanagement will lead to renewed pressure on him.

In 2010, the auditor revealed that the mis-selling of mobile phone licences on a first-come-first-served basis instead of an auction in 2008 had cost the treasury up to $39 billion.

The then telecom minister and other ministry officials are currently on trial accused of using their powers to twist the process to favour certain companies.

The CAG released its audit entitled ‘Allocation of Coal Blocks and Augmentations of Coal Production’ against a backdrop of a huge problems in the state-dominated sector, which is vital for India’s economic development.

State-owned Coal India, the world’s biggest coal producer, has been struggling to raise output to meet the demands of power producers, leading to electricity shortages that constrain companies and inconvenience consumers.

More than half of the India’s electricity comes from coal-fired power stations, some of which are lying idle because of supply shortages or are being forced to resort to importing expensive foreign coal.

At the beginning of the month, a mammoth power cut blacked out half the country, affecting an area home to 600 million people when three regional electricity grids collapsed partly due to over-demand.

In March, Coal Minister Sriprakash Jaiswal explained that the prime minister had agreed in 2004 in principle to have competitive bidding for the sale of coalfields but the process had taken time due to the complexities involved.

Jaiswal said that guidelines on auctions were being drawn up and would shortly be implemented, though the process has not yet been announced.