CAG report on coal blocks tabled in parliament

The explosive Comptroller and Auditor General (CAG) report on the alleged malpractices in the allocation of coal blocks was on Friday tabled in the Parliament.  The report has pegged the loss caused due to irregularities in coal block allocations at Rs 1.86 lakh crore. The initial CAG draft report had estimated the loss at Rs 10.7 lakh crore.  The humongous loss to the exchequer meant windfall gains to the private players, as the coal block allocations were done without competitive bidding. The CAG has not only recommended immediate coal block auction but also an FIPB like single window for their clearances. On Coal India Ltd (CIL), CAG recommends synchronising the coal mining and transportation activities. It also suggests setting up of coal washeries. The Government has reportedly put together a robust defence against the CAG report. Surprisingly, the final CAG report is silent on the role played by Prime Minister’s Office (PMO) in the allocation of coal blocks. The CAG report says that 44 billion tons of coal was given at throw-away prices, while 194 coal blacks were allocated on just recommendations. The major beneficiaries included Tata Group entities, Jindal Steel & Power, Anil Agarwal Group companies, Essar Group's power ventures, Adani Group, Arcelor Mittal and Lanco group.

CAG reports on Delhi airport, UMPPs presented in parliament

The Comptroller and Auditor General (CAG) reports on the Delhi airport concession to GMR group and on the ultra mega power projects (UMPP) were also tabled in Parliament on Friday. The CAG's draft report on public private partnership (PPP) for the Indira Gandhi International Airport had reportedly said that Delhi International Airport (DIAL) has the potential to earn Rs 1,63,557 crore over a 60-year period from the land given to it on a  lease rent of Rs 100 per annum, hurting the interest of the Government. The CAG report also points out that 239 acres of land for construction of a new terminal was given to GMR-owned DIAL on lease as against the market rate of Rs 24,000 crore. Not only that, even after getting land at such low rates, DIAL was charging User Development Fee (UDF) from passengers using the airport. The CAG report says that DIAL has made over Rs 3400 crore by way of UDF and that the clause allowing DIAL to charge UDF was not in the initial agreement but was later introduced by the Union Civil Aviation Ministry. The CAG report also raises questions on some UMPPs. On the Sasan UMPP of Reliance Power, the auditor says that differential tariff has led to a gain of Rs 29,000 crore for the company. CAG says that the bidding process for the Sasan UMPP was vitiated by allowing Reliance Power to use excess coal from three blocks allocated for the power project.

SEBI unleashes new rules to boost MF, IPO markets

Capital market regulator unleashes a slew of measures aimed at reviving investors' interest in mutual funds as well as the primary market. SEBI announced extensive changes in its rules for mutual funds and IPOs. As per the new SEBI rules, investing in mutual funds could become more expensive, but retail investors will be assured a minimum number of shares in IPOs. SEBI also recommended to the Government that equity mutual investors should be given tax benefits under the proposed Rajiv Gandhi Equity Savings Scheme (RGESS). SEBI Chairman U.K. Sinha announced a slew of measures, including those relating to expense ratios and taxation, to boost the mutual fund industry, which has been hit by sluggish markets and changes in regulations. Although SEBI did not re-introduce the entry fee, as was widely expected, Sinha said that new rules would allow greater flexibility in the use of total expense ratios. Fund managers will now be given freedom to distribute their costs.  In order to encourage long-term investments, SEBI stipulated that exit loads - the penalties investors have to pay when exiting a mutual fund scheme early - would be plowed back into the funds, benefiting the remaining investors. The fund managers would also be able to use the exit loads to charge an additional total expense ratio of 20 basis points, which could be used for marketing or other activities.

SEBI also decided that service tax would be charged to the ultimate investor, not to the asset management company (AMC) as is the practice at present. Meanwhile, Indian companies will be allowed to achieve the minimum 25% public shareholding rule through the allocation of bonus or rights shares, Sinha said. Indian market regulations stipulate that all listed companies must have a minimum 25% public shareholding by June 2013. However, many companies have failed to meet this guideline because of poor market conditions. India Inc. will now have the option to do so by auctioning shares to institutional investors or via follow-on share offerings. SEBI also decided to allocate a minimum number of shares to the retail investors in IPOs. It also approved e-IPO procedure for electronic bidding in public offers. The regulator would also frame new rules for investment advisers, Sinha said. Among other decisions, non-retail investors cannot withdraw or reduce their price or offer size in IPOs, but can enhance the same. Companies coming out with IPOs would now have to disclose the price band at least five working days before the opening of the bidding, as against the current norm for two days. Sinha said that companies would not be allowed to raise more than 25% of the total IPO size for general corporate purposes. Currently, there is no cap for funds raised for "general corporate purposes." The move will help bring in transparency and check possible misuse of funds raised by companies through IPOs.

Chidambaram satisfied with SEBI measures

The Union Finance Minister, P. Chidambaram has noted with satisfaction the measures announced by the Securities and Exchange Board of India (SEBI). Following is the text of his statement:-

"It may be recalled that in my statement of August 6, 2012, I had said that "In the next few weeks, we will announce a number of decisions to attract more people to invest in mutual funds, insurance policies and other well-designed instruments." In the context of that statement, Government welcomes the decisions taken by SEBI.

These measures will stimulate financial savings among households as well as give a fillip to the mutual fund industry. More and more households should be encouraged to save in financial instruments rather than in gold. Government has noted with satisfaction that the measures announced by SEBI yesterday have been widely welcomed by all the stakeholders. There are a number of other suggestions which are under consideration by the Government. When U K Sinha, Chairman, SEBI called on me on August 14, 2012, I had requested him to examine those suggestions independently and advise me. The examination by the Government and SEBI is likely to be completed in the next two weeks. I have requested Chairman, SEBI to schedule another meeting of the Board in early September when some more decisions can be taken on the suggestions that are under examination.

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