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is the cag’s coal report too conservative?

one of the major strands of media reporting in the aftermath of the coal report being tabled in the parliament is whether the cag report got its arithmetic right. all manner of reporters and pundits have been loudly arguing that it presents too inflated a number. the finance minister has recently said that there was no loss at all.

in this story, i argue that the cag report, if anything, is too conservative. it is an easy point to make. for it, unlike the pundits’ theorising, can be supported empirically.

In November 2008, the Madhya Pradesh State Mining Corporation (MPSMC) auctioned six mines. “The minimum bid price was set at 200% of royalty,” says a senior official of MPSMC, who did not want to be identified… In the MPSMC auction, however, the winning bids ranged from a royalty of Rs 700-2,100 per tonne.

contrast that to the cag report which…

Based on certain assumptions and extrapolations from numbers of Coal India, CAG further estimated the per-tonne-profit for these mines to be 295… “The auctions by MPSMC netted 2.3-7.1 times the rates we assumed,” says a senior manager in CAG, who was part of the team that prepared this report and spoke on condition of anonymity.

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