With the controversy over the alleged coal block allocation scam refusing to die, the government might have claimed it would introduce auctioning regime by this year end, but at least two issues — difficulty in finalising a floor price for bidding and the slow progress of exploration of the acreages to be put on block — are set to stymie the government’s efforts.
While the efforts to introduce auctioning before 2010 were stymied by opposition from states and conflicting opinions from the law ministry, implementing the bidding regime after 2010 has not been possible owing to the coal ministry’s internal administrative lapses.
A Bill to amend the Mines and Minerals Development and Regulation (MMDR) Act to allow allocation of blocks through the bidding route was introduced in the Parliament as early as 2008. However, even two years after the Parliament approved the Bill in September 2010, the coal ministry has not been able to complete its groundwork for the auctioning process.
A senior official involved in the framing of bidding guidelines said the government was finding it extremely difficult to fix a floor price that would adequately reflect the value of a given mineral deposit. “While a low floor price may not reflect the proper economic value of the reserve, a high floor price would drive away most bidders. We do not want to be seen as favoring large companies,” he told Business Standard.
Besides, the difficult geology of the 54 blocks to be auctioned is acting as a major deterrent in exploration by Coal India’s technical arm, Central Mine Planning and Design Institute Ltd (CMPDI), leading to the delay. To add to the ministry’s problems, there is not a single case of bidding being conducted for coal acreages in the entire world.
The recent spate of corruption charges on the government during block allocation in the past has made officials wary of taking decisions related to the matter. This was one of the reasons why the ministry decided to outsource the task of deciding floor price to private consultant CRISIL, the official said.
“It was initially considered to let CMPDI decide the floor price for bidding. The idea was dropped later owing to the view that CMPDI could have been seriously influenced by the bidders,” the official said. “We have been trying so hard to wrack our brains and figure out a best-possible model for bidding. But we know that, because of the complex nature of the job, no model would be completely perfect,” he added. CRISIL’s report is expected next month.
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Commenting on the delay in starting bidding rounds for blocks, coal minister SriPrakash Jaiswal said on Friday that his ministry is adopting an “extremely cautious” approach towards the process to avoid any controversy in future and indicated that a majority of the blocks are yet to be explored by CMPDI. “Around 12 of the 54 blocks have been explored so far,” he said.
Some experts believe that the government may have already created the grounds for a future controversy and conflict through a contentious provision in the Auction by Competitive Bidding of Coal Mines Rules 2012 notified in February this year. Under the rules, the government has exempted power projects bid out on tariff-based bidding from auctioning of blocks. The move was based on the concern that projects would become uneconomical in case a developer is asked to go through two rounds of bidding — one for deciding the tariff for sale of electricity and the other for allocation of block.
While the coal ministry has saying that revenue maximization was never an objective while allocating blocks in the past, Finance minister P Chidambaram on Friday said revenue maximization would be a major consideration while auctioning of blocks.
“While revenue is a consideration, there will be differences in the bidding parameters depending upon the sectors. The government is not in the business of trading coal. It is in the business of promoting power and steel production,” he said.
Blocks will also be given on government dispensation route to state power utilities on the basis of a reserve price, Coal secretary S K Srivastava clarified. Coal blocks will be allocated to companies in sectors other than power, and power projects outside of tariff-based bidding, through a proper auctioning method on the basis of floor price.