Compares and contrasts the spectrum and coal scams and raises important questions of public governance and accountability

1. From Spectragate to Coalgate: Private Gain or Public Good-I?
Barun Kumar Basu
Events of the last 18 months or so in India– spectrum, iron ore, airports, sand and now
coal mining gives an impression that, in Leo Tolstoy’s words, “The time is fast approaching
when to call a man a patriot will be the deepest insult you can offer him. Patriotism now
means advocating plunder in the interest of the privileged classes of the particular State
system into which we have happened to be born.” A common thread that runs through all
these is their Hunnish plunder by privileged classes. I confine myself only to spectrum and
coal for reason of brevity and space.
In 2G there was a greenfield commodity – spectrum - available for sale whose market
demand was unknown. At the same time, state policy targeted provision of cheap mobile
phones that my attendant and driver could easily afford. In order to put a cheap price on a
greenfield commodity whose market price and availability of technology were unknown, the
State decided to invite bids on a first come first serve basis. Those who applied for spectrum
licenses were all new operators then, whose ability to deliver mobile technology at an afford
able price was unknown even to the seller. The State therefore assumed a risk that ultimately
paid off as a rapidly widening market grabbed the new technology. The issue of revenue
maximization was incidental, while the State provided an unwritten subsidy, both of risk and
cost. At heart was the public good that has been amply met, irrespective of UPA or NDA.
However, within the good lay the bad. Criminal breach of trust in informing bidders
beforehand of costs that would safely pass muster in violation of secrecy vitiated the system.
What followed was even worse that severely dented India’s international credibility. Public
institutions, constitutional, investigative and taxmen, jumped into the fray and prominently
featured on media screens bandying their reports in an evident sign of victory over a
vanquished State, assigning fantasmorgic Rupee values even as they sought to book culprits
and recover ill-gotten assets and lost taxes across international borders. The courts too joined
in and 122 new licenses were cancelled in favor of an auction, the contours of which remain
as blurred as ever.
That auction can be customized and there is no one size fits all solution, as for metal
scrap disposal, was given the go-bye. All these events had the intended effect of driving out
competition from new global telecom majors. Public institutions therefore played into the
hands of an emerging cartel of 4-5 private operators that could not be matched in their
financial muscle by nearly bankrupt State-owned BSNL and MTNL that already suffer
dwindling land line penetration. One can only hope that the sequence of all such actions was
only a coincidence.
In a dramatic turnaround, a beleaguered State decided to go in for a sophisticated e-
auction of 3G spectrum and netted promise of approx. Rs. 70000 crore in spectrum licensing
fees. However, owing to high entry costs, 3G never became affordable and wary companies
did not invest much in strengthening and expanding their networks. In investigating and
reporting upon the 2G ‘scam’, the media and public institutions presumed that if 3G netted
Rs. 70000 crore, 2G being a service with a larger clientele, ought to have netted at least an
arbitrary one and a half times more. What was conveniently forgotten was the fact that a 3G
service had to piggyback upon the 2G service, already adding to costs and proportionate
reduction in popularity. Following judicial annulment of new 2G licenses, the State was
pushed into re-auctioning of 2G airwaves.

2. All this was unmindful of a rapidly emerging cartel stated above that could easily
dictate a price to the State, irrespective of TRAI’s manifold high pricing that too was a fallout
of the ongoing witch hunt and the corresponding human tendency to ‘play safe’ oblivious of
public good. Higher entry costs invariably implied higher costs for users in line with expected
business wisdom, notwithstanding TRAI’s claims that such rise would only be nominal. This
is when neither has TRAI succeeded in ensuring high quality of 2G mobile services nor any
decline in call charges in spite of a 500-million subscriber base. Rather it has succumbed to a
hike in call charges, testimony to the growing clout of private telecom majors. As if this were
not enough, a financially challenged central government attempted to recover taxation for an
overseas acquisition with retrospective effect from a multinational telecom major. Mercifully,
the Parthasarathi Shome Committee has recently recommended a three-year respite from such
desperation. Low efficacy of government regulation of private sector-dominated industry has
only laid the State open to more charges of crony capitalism.
What happened in the case of coal? CAG discovered on the Coal Ministry’s files that
the Secretary of that Ministry used the term ‘windfall gains’ to call for an auction of captive
mines. Was ‘windfall gains’ a euphemism for private speculation rather than lost opportunity
income for the State? Here too the objective of public policy was the public good, the
availability of affordable power to fuel equally affordable cement and steel for our creaking
infrastructure. Notwithstanding the fact that the very concept of captive mines for limited in-
house electricity generation ran counter to a fellow Ministry’s – Power – established schemes
to generate electricity on a much larger scale for the public good by private sector entities, the
Coal Ministry went ahead unmindful of the fact that were such mines given to private
electricity generators through a single source – the Ministry of Power - these could have been
bought by the above cement and steel manufacturers under rates prescribed by State
regulators. Surplus electricity, if any, could be passed on to the general grid for public
consumption in an electricity-starved nation. Neither did the Coal Ministry have any policy
for allocating such mines nor did a myopic PMO apply itself to such key strategic shift even
though the Prime Minister, an economist, was also the then Coal Minister. It would also
perhaps have sounder economic sense to hand out larger number of contiguous blocks to a
single private/public power producer that would reap economies of scale rather than an
inefficient system of a captive mine or two each for numerous steel and cement producers.
Why this dichotomy between Coal and Power Ministries was kept alive even though the
common binding thread remained the supply of electricity has no convincing answer.
CAG’s report, that bases itself almost entirely upon the term ‘windfall gain’ used by
the Coal Secretary, nowhere states that this Secretary quantified the nature and amount of the
windfall gain. However, CAG does talk of lapsed performance bank guarantees that
aggregate a pittance of Rs. 300 crore. Since such guarantees are normally based on a base
production value annually, how sacrosanct is the figure of Rs. 1.86 lakh crore that politicians
are so vociferously arguing about? Did the Coal Ministry undertake any study which showed
that it was in the best interest of the State to hand over these mines gratis in the expectation
that beneficiaries’ new investments in and long-term returns from them would equal the
original capital cost of such investments? Has some sort of rudimentary valuation of natural
resources been done that would give bases for calculating unearned income/loss? Further,
would there be any ‘windfall gain’ if development cost of new mines and high depreciation
of new mining plant and machinery were factored in or would speculative profit underwrite
such initial losses? Did CAG and/or the Coal Secretary independently assess Coal India’s
(CIL) extraction costs before arriving at fantasmorgic figures of unearned income by the
State allegedly gifted to private parties whose credentials were not verified or many who
were not even given a chance to state their case for an allocation? Moreover, did either the

3. Coal Secretary or CAG factor in an almost 1:6 or 7 differential between the ash content in
imported and Indian coal while arriving at ‘windfall gain’? Furthermore, was any royalty
required to be paid to the State by such beneficiaries even if no capital cost was charged from
them? Last, but not the least, if CIL was unable to produce more coal for generating
electricity, should the shortfall be made good by industry-specific captive mine allocation or
such mines given to private power producers? CAG’s report speaks of major infirmities in
CIL’s equipment utilization and extraction capabilities, yet excludes its allocated mines from
the Rs. 1.86 lakh crore figures, erring on the side of an inefficient government undertaking. In
the political brouhaha over fixing responsibility on the Treasury benches by the Opposition
with both eyes on Elections 2014, such fundamental questions of governance remained
unanswered.
The author is a former Ambassador of India
(Part-II to next page)

4. From Spectragate to Coalgate: Private Gain or Public Good-II?
Barun Kumar Basu
Faced by a hostile legislature and mounting public criticism, the state’s reaction was
perfectly predictable. Auction again became the fashionable buzzword. A familiar witch hunt
started that sought to relate speculative gains of captive mine beneficiaries to members of
Screening Committees, bank guarantees not renewed, notices not issued for not starting
power production by stipulated dates, etc., even as fundamental questions that affect the
nation’s economic security burnt in the jet stream of public debate among heavyweight and
often eloquent worthies. The manner in which legislative debate meandered reminded me of
Oliver Goldsmith’s pithy remark that “Surely the best way to meet the enemy is head on in
the field and not wait till they plunder our very homes.” Hang the perpetrators appears to be
the final verdict. However, there are no answers to what thereafter? The drift continues while
the nation’s infrastructure crumbles to dust and its international credit ratings take a further
beating. There is no effort either to strengthen State regulators or even to boost electricity
supply even as national power grids collapse and senior Ministers remark that the best way to
stop overdrawing is to jail senior officials of state(s) that overdrew such electricity!
Evidently, public good policies of a welfare state, sound economics and business
sense were the biggest casualties. In the fierce debate over whether auction or first come first
serve was better, an ambiguous view of auction as the best option emerged unmindful of the
pitfalls. Should revenue maximization by the State be accorded priority over the welfare of its
citizens? If so, then Indians must necessarily fork out Rs. 5 for a glass of water, Rs. 10 per
unit of electricity, Rs. 1000 toll for a one way trip from Delhi to Agra via the Yamuna
Expressway, et al. If not, there ought to be a declared comprehensive State policy that
unambiguously lays out in fullest detail how the nation’s natural resources must be
sold/allocated while catering to the peculiar needs of an industry, transparency such as, but
not limited to, public disclosure of applicants’ credentials, parameters of selection and pre-
sale/allocation oversight by a technically qualified agency of the government.
The politics of state patronage and private speculation on public properties for
personal gain-sharing between sellers and buyers must be replaced with a fresh
comprehensive Transfer of Natural Resources Policy duly backed by a central legislative
enactment and a system of rewards and penalties that does not need public outcry or
legislative disruption for enforcement. The State needs to set up a quasi-judicial National
Natural Resources Authority that would become the single-window clearance mechanism for
all sale/lease of State-owned assets, backed by its own appellate tribunals with the
jurisdiction of a State High Court to enforce failures in implementation of
lease/contract/performance agreements and adjudicate on such strategic and high value
assets. Such Authority would also have the power to hold public hearings, decide on disputes,
impose penalties, et al.
The choice of the Chief Executive of such an Authority and its members would
determine its success or failure, success by integrity, knowledge and ground experience and
failure by their singular lack of some or all of these qualities. I therefore vote for Mr. Ratan
Tata (who retires in December, 2012 from the Tata Group) whose impeccable integrity and
probity, leadership and experience in telecom, electricity, cement, steel and other strategic
areas, makes him the ideal choice for the founding Chief Executive of such an Authority. For,
similar organizations like UIDAI, under the stewardship of Mr. Nandan Nilekani, have

5. remained scam-free. After all, India’s growing private sector too should be allowed to
contribute to the national interest in a fair, equitable and transparent manner. At the same
time, it is imperative that a National Asset Register is created including all State properties
from Rashtrapati Bhavan to a coal mine so that the State does not lose track of the assets it
already owns and administers. The State must know what properties it possesses so that no
one can again turn them into private sources of profit and illegal gain sharing with owners.
Given India’s plummeting international ratings, crumbling/non-existent strategic
infrastructure and the need to attract FDI and provide domestic industry, agriculture and other
consumers the basic ingredient of development, a combination of political and economic
statesmanship is the need of the hour rather than petty competitive advantage for Elections
2014. The assets belong to the nation that alone has the right to use them for its own welfare
upon its own terms and conditions so that public properties do not become the playing field
for private speculation and unholy personal gain. If coal blocks are indeed de-allocated, it is
incumbent upon the State to reallocate them within the next six months with stringent
monitoring built into lease agreements between buyers and the State as also to recover
penalties for non-performance, if need be, by establishing fast track tribunals. This would
deliver a clear message of perform or be damned to prospective beneficiaries and warn fly-
by-night operators and their beneficiaries of the stern intent of the State.
Neither is repeated judicial intervention in matters of governance desirable or
sustainable nor are laws that encourage malfeasance and end up feeding on the assets rather
becoming a facilitator of development. As Frederic Bastiat, the 19th century French liberal
political economist aptly stated, “The mission of the law is not to oppress persons and
plunder them of their property, even though the law may be acting in a philanthropic spirit.
Its purpose is to protect persons and property.... If you exceed this proper limit - if you
attempt to make the law religious, fraternal, equalizing, philanthropic, industrial, or artistic -
you will then be lost in uncharted territory, in vagueness and uncertainty, in a forced utopia
or, even worse, in a multitude of utopias, each striving to seize the law and impose it on you.”
That encapsulates the dilemma of the Indian State today.
The author is a former Ambassador of India