Auditor says Indian government lost billions by selling coalfields

NEW DELHI -- India's national auditor said Friday the government lost huge sums of money by selling coal fields to private companies without competitive bidding and in a deal for Delhi's international airport, adding to massive losses from dubious auctions of other state assets.

Three reports by the Comptroller and Auditor General sparked a new storm of criticism of a government that has been floundering under a crush of scams and corruption accusations and has been unable to push through critical economic reforms.

Over the past year, a raft of scandals have surfaced involving ministers and senior officials over corruption charges in the hosting of the 2010 Commonwealth Games and the sale of cellphone spectrum that auditors said lost the country billions of dollars.

The auditor's coal field report to Parliament estimated that private companies got a windfall profit of $34 billion because of the low prices they paid for the fields. The report said an auction would have given the government some of that money.

It revealed that 142 coal fields were sold since July 2004 to private and state-run companies. Some of the coalfields bought by private companies in 2004 did not begin production till 2011, while some companies later made enormous profits by selling the coal mines.

The report criticized the sales procedure that was followed and said the allocation of coal fields "lacked transparency and objectivity."

The auditors said the allocations were made on the recommendation of state governments. They exonerated Prime Minister Manmohan Singh even though he was running the coal ministry part of that period under review.

Coal Minister Sriprakash Jaiswal defended the government's strategy of handing out coalfields to companies without resorting to an auction process by saying the policies were suited to the time when they were adopted.

He also disagreed with the CAG's estimate of losses, saying these were unexplored coalfields.

"When the revenue from these coalmines is not known, how can losses be estimated?" Jaiswal told reporters Friday.

India has been facing a severe shortage of coal to fuel its power sector. Last month, more than 600 million people in the country went without power for hours after the electricity grid collapsed, plunging northern, eastern and northeastern India into darkness.

Starved of coal supplies, India's power companies now are looking at importing coal from Indonesia and Australia.

On Friday, opposition lawmakers slammed the government for not pushing ahead with legislation on auctioning procedures for coal fields that has been pending in Parliament since 2006.

"This is a scam that has been taking place under the prime minister's nose. We want answers and an explanation from the prime minister on the charges made by the CAG," said Rajiv Pratap Rudi, a spokesman of the main opposition Bharatiya Janata Party.

The government countered the arguments, saying the auditors' report would be studied by the Parliament's public accounts committee.

V. Narayanasamy, minister in the prime minister's office, said the CAG report was "not the last word."

The government has argued that when the coal fields were allotted, the laws existing then did not allow for an auction. Changing the policy and administrative processes would have delayed the process by several years and would have hurt industry sectors that needed coal.

An earlier draft of the report that had been leaked to the Indian media claimed the government had lost nearly $210 billion from the coal allocations.

The auditor said it had lowered the amount after subtracting the profits that accrued to government-owned companies and accounting only for the profits made by open cast mines. The auditor did not explain the reason for leaving out the profits made by underground mines.

The losses could rival those from the government's botched sale of 2G cellphone spectrum in 2008 that the auditor said cost the nation up to $36 billion in lost revenue.

The CAG's report on expanding New Delhi's Indira Gandhi International Airport chided the government for leasing out land with a potential earning capacity of $30 billion to a consortium, Delhi International Airport Limited (DIAL), which had made a total equity contribution of only $445 million.

DIAL is a public-private partnership between India's GMR group, which has a 54 per cent stake, and the state-owned Airports Authority of India. Germany's Fraport AG and Malaysia Airport Holdings are the other minority partners in the consortium that has operated the Delhi airport since 2006.

Another CAG report on power said that the lowest qualified bidder for the role of consultant in two mega power projects was not considered and the contract was given at a higher price to Ernst & Young simply because they had advised on the bid management of a power plant in Bangladesh.

In at least one case, the government allowed a private power company to use surplus coal from another power project, a move that would likely result in financial benefits to the company of $5.3 billion over 20 years, the report said.

The permission to use surplus coal from other projects "vitiated the sanctity of the bidding process since it amounts to significant post bid concessions," the report added.