Sunday, September 9, 2012

TOI’s Jindal Power expose of cheap coal, high profits….demolishes many of BJP’s claims

Yesterday’s TOI story “Secret of Jindal’s success: Cheap coal, costly power” analyzes excellently how Naveen Jindal’s company – Jindal Power Limited – occupies that sweet spot in which it gets coal cheap and yet is unfettered by any low-price, long-term power-purchase-agreements (PPAs) with state governments. The story shows how the cost of coal for Jindal is as low as half of that for other power producers who have to buy coal from Coal India or other state companies and how this has given the company abnormal profits – estimated by the paper at 60% of its revenues in a particular year. Now this is the kind of thing that people hate….someone making extraordinary profits for all the wrong reasons. Naveen Jindal has denied these charges….and no one knows the truth yet….but the subject still provokes a thought.

Probe further and the truth starts to tumble out. For one, the company was first allotted coal blocks free by the NDA during its period of rule. Did the NDA not deem it necessary to put the restriction of signing up PPAs before allotment? Didn’t the BJP know that Jindal Power would make windfall profits because of this unconditional allotment? At least nowadays, power producers are forced to sign PPAs before they get their free coal blocks. At least now they have to go through reverse auctions to win the rights to set up power plants (the winner is one who bids the lowest power tariff).

And if a political connection is sought to be established since Jindal is a Congress MP, then how come the NDA showed such generosity towards him? Surely, if Jindal’s qualification was nothing more than his Congress credentials, the BJP was under no pressure to recognize those? If anything, that would have been a fantastic opportunity for the BJP to deny Jindal the coal blocks and take the high moral ground. Why then did it still grant him the courtesy? Why is it that Jindal getting free coal allocations during BJP times is “business as usual” but while getting it during Congress times is “nepotism”, “crony capitalism” and “kleptocracy” as the BJP so colorfully describes for the benefit of news TV viewers?

The answer of course is not difficult to understand for those who want to understand without politicizing the matter. All businessmen – especially those in sectors where government control is still very high – have to schmooze with politicians of all parties and get their “blessings”. Its a fair market out there. Whoever pays the most gets his work done the fastest! It doesn’t matter whether it’s a BJP government or a Congress government at the center.

One other story the BJP fails to answer convincingly of course is about why it did not think of auctions during its period of rule. The party – and as an afterthought as I will now prove – claims that the prices of coal were so low in those days that auctions were not required. Or some such logic. Well, there is a terrible fallacy in this argument and the fallacy is the same as the one in Chidambaram’s assertion that there was no loss since the mineral had not even been mined and it remained safely ensconced within mother earth. The BJP at that time argued correctly that even if the coal had not been taken out, the “rights” had been transferred away to the miner and had gone out of the government’s control. Then by the same logic, when the BJP gave away coal blocks free, did it not transfer the rights to the miner for good without thinking of what would happen to coal prices in the future, even if they were low at that time? The BJP claims success for amending the Electricity Act in 2003. Surely it should have expected that with hordes of private players coming into the power sector, the demand for coal would shoot up and the prices likewise? Why then did it transfer the rights like this? Why did this not make it think of auctions? If they had at least thought of auctions, one could have argued that their intentions were noble, but their actions were slow. But in reality, this cannot be said for the BJP. That is why I feel that this defense put up by the BJP is nothing but an afterthought.

What is emerging with every passing day is that every political party has been a beneficiary of the coal allocation process. Every state government has made recommendations for private companies. Every politician has done the same. And everyone colluded to avoid auctions. The blame can hardly be laid on the Congress’s doorsteps alone. Forget coal, the problem lies in all mining sectors. The iron ore scam in Karnataka is worth some Rs 50000 crores and the SC is now breathing down the Karnataka government’s backside. Transparency is the need of the day and the UPA did the right thing by making it possible for auctions to take place – though it took 7.5 years to do so. The BJP in the meanwhile played no constructive role at all.

The real truth is that all politicians are involved in scams. The NDA started the process of giving 2G spectrum free and that was not a scam…..Then when the UPA continued the system, it suddenly became a scam. The irrigation scam in Maharashtra likewise (in the papers today) shows that the scam started with the Shiv Sena- BJP government. Wherever you scratch, you find all politicians involved. In the absence of transparent electoral funding, what better can we expect???

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