Undue benefits to R-Power: CAG draft report on coal allocation

But company says govt decision to permit use of incremental coal does not result in any loss to exchequer or undue benefit

The draft report of the Comptroller and Auditor General of India (CAG) on coal allocation has alleged undue benefits of Rs 15,849 crore to Reliance Power Ltd (RPL) by way of surplus coal allocation for two of its Ultra Mega Power Projects (UMPPs). The report pegs benefit to RPL from surplus allocation for the Sasan UMPP at Rs 4,875 crore. Another Rs 10,974 crore “may accrue” from the Tilaiya UMPP, it says.

The draft report was quoted in a The Times of India news report on March 22 as finding ‘undue benefits’ through allotment of 155 coal blocks to various companies. In a letter to Prime Minister Manmohan Singh the same day, the CAG had downplayed the draft report saying “the details being brought out were observations which are under discussion at a very preliminary stage and do not even constitute our pre-final draft and hence are exceedingly misleading”.

TOI had uploaded the draft report on its website on March 24. Subsequently, on March 27 — speaking at a function of the Indian Public Auditors’ Association in New Delhi — CAG Vinod Rai commented that the CAG is “incapable of making any fundamental error in audit report. Our audit reports are scrutinised at two-three layers and all facts and figures are based on documentary evidences.”

The draft report points out that the coal requirement for the Sasan UMPP stood at 400 million tonne (mt), or 16 mt per annum (mtpa). However, the coal ministry allocated 560 mt mineable reserves to RPL for the UMPP through three coal blocks — Moher, Moher Amlori Extension and Chatrasal — between 2006 and 2009. This led to a surplus allocation of 160 mt, or 9 mtpa, to the company leading to a benefit of Rs 4,875 crore over 25 years.

According to media reports, the CAG had earlier pegged the gains to RPL at Rs 1.8 lakh crore, but the draft report uploaded on TOI’s website site said the undue benefits to the company was to the tune of Rs 15,849 crore. Although the figure is substantially lower than the initial estimate, the final report — which is expected to be tabled in Parliament in April — is likely to stick to Rs 15,849 crore.

The draft report notes how the standing committee of the coal ministry had said, while approving the mining plan for the Chatrasal in 2009, that there was no justification for allocation of the Chatrasal block for the Sasan UMPP, but the mining plan is being approved in view of the need to step up coal production.

In case of Tilaiya, the draft report said an excess coal quantity of 516 mt was allocated to the company through two blocks — Kerandari B and C — of which 361 mt was mineable. Therefore, undue benefits that might accrue from Tilaiya would be Rs 10,974 crore, according to the draft report.

The draft report said though the issue of usage of surplus coal is defined in the guidelines of the coal ministry and forms a part of the bid documents, the allocation letter did not spell out upfront over the issue. This ambiguity, the draft report says, allowed the bidders to vitiate the allocation process.

R-Power denies

A Reliance Power spokesperson, however, said “the government’s decision to permit use of incremental coal does not result in any loss to exchequer nor it confers any undue benefit to the company”.

The company said the coal blocks are the only ones in India allotted through a transparent process of international competitive bidding, with RPL quoting historical landmark tariffs of Rs 1.19 per kwh for Sasan and Rs 1.77 per kwh for Tilaiya Projects. The process of allocation is in line with the process ratified by Parliament when it approved the MMDR Amendment Act 2010. “The permission for use of incremental coal for our projects was taken at the highest level in Government of India, by Empowered Group of Ministers (equivalent to Cabinet) followed by approval of the competent authority in ministry of coal.”

The Delhi High Court had dismissed the petition filed against the government permission. In its response to Business Standard, the company quoted government affidavit to the Supreme Court, stating that “the decisions that have been taken by the government (permitting the use of incremental coal) are entirely in accordance with law and in overwhelming public interest.”

An amendment to the MMDR Act passed by Parliament last year to introduce competitive bidding for coal blocks has exempted power projects like UMPPs — that are bid out on tariff-based bidding — from auctioning for coal acreages. The draft CAG report has also not included the blocks allocated to UMPPs in the calculation of overall Rs 10.6 lakh crore undue benefits to companies. The alleged benefits of Rs 15,849 crore extended to RPL are discussed in a separate section in the report.