Coal block auction

Having opted for the e-auction route following the de-allocation of coal blocks, the government has to ensure a transparent and fool-proof bidding system.

Miners pull a cart full of coal in a mine in Jaintia Hills, Meghalaya, India, on Thursday, Feb. 2, 2012. India, reliant on coal for more than half its electricity, is struggling to ease blackouts as delays in adding railways hinder fuel supplies and discourage investors from building $36 billion of power plants. Photographer: Brent Lewin/Bloomberg

THE need of the hour is to have a transparent and foolproof bidding system, and not “unnecessary romanticisation” of any single process such as electronic auction (e-auction), say those involved in coal mining.

Having burnt its fingers earlier with coal block allocations, the government has now decided to allow e-auction of blocks to end users. The end users in round one of the auctions to be held in December, where 74 blocks are on offer, will be power, steel and cement industries. But, the government has also left an enabling provision in the Coal Mines (Special Provisions) Ordinance, 2014, by which it can decide on additional commercial use at a later date.

Online auction A request for quotation (RFQ) is a standard business process whose purpose is to invite suppliers into a bidding process to bid on specific products or services. In e-auction, the transaction takes place between auctioneers and bidders in an electronic marketplace. This system enables buyers to assess suppliers’ bid responses in a relatively fair and accurate manner.

The government has awarded coal blocks on allocation basis until now except for Ultra Mega Power Projects where bidding was tariff-based and coal was only for captive use.

E-auction has earlier been used for auctioning telecom spectrum. “But, we need to learn from the experiences and adopt the best practices,” said Anil Swarup, Secretary, Ministry of Coal.

For fixing the floor price of coal blocks for sectors such as steel, cement, sponge iron, and captive power, the government could depend on the current value of the block, which will be based on components such as international mine mouth (pithead) prices and the previous three-year average of imported coal prices.

Deallocation The Supreme Court’s judgment of September 24 cancelled all coal block allocations made between 1993 and 2010. This will lead to the complete de-allocation of 204 blocks by March 31, 2015. It has left the government with little time to put in place a foolproof system.

However, the government has already started work on it. “The intent is to get cracking by December. We are targeting mid-December to start tendering,” Swarup said.

Of the 74 blocks that will be put on offer in the first round, the Coal Ministry intends keeping some out of auction pool. These select blocks will be offered to the State and Central public sector undertakings.

The challenges

But, there are many challenges. “We need coal. We have to see how the bidding norms prescribed specify the work programme. The objective of the auction route is to discover credible and earnest players in an objective method, not merely to rake in money for the state,” former Coal India Chairman S. Narsing Rao said.

He said that the norms prescribed when awarding blocks should also include conditions such as a well-defined work programme. “A reasonable and doable timeline should be given to the contractor to produce. If the blocks are allocated but not brought into production, then what is the use?” he said, adding that “the revenue collected should be made production linked”.

The government should also factor in the risks involved in this business, Rao said. “If the mine is unexplored, the developer is unaware of the quantity and the quality. When deciding on the revenues, the government should also factor in this component,” he added.

Currently, nearly $20 billion worth of coal is imported and this can come down if the mines start production after the e-auctions. Also, waiting for the process to take off is the power sector. The power plants whose linked coal blocks were termed illegal by the apex court are the ones looking for immediate solutions.

(With inputs from Debabrata Das.)