When the Supreme Court decided to cancel 204 coal blocks, allocated since 1993, the underlying judgment was that in the absence of a competitive bidding mechanism for allocation of natural resources, the decisions to allocate coal blocks to private sector by the successive government were arbitrary. It, however, appears that the latest round of auctions were not so different after all. There is a fresh controversy surrounding the recent cancellation of four coal blocks, won by Jindal Steel and Power (JSPL) and Balco in the auctions held in February, on similar grounds.
The government cancelled two bids of JSPL for three blocks (Gare Palma IV/2, IV/3 and Tara) and one by aluminium-maker Balco for Gare Palma IV/1 on grounds of cartelisation by the companies involved. JSPL, which managed to win back its Gare Palma blocks with the lowest bid of Rs 108/tonne in the Schedule II auction, took the government by surprise, especially as other bids were between Rs 727/tonne and over Rs 2,000/tonne. The reasons stated for the decision were an abruptly ended bidding process and that the highest bid prices were low compared to those received for blocks with similar grades of coal and same end-use.
The government now wants to give the cancelled coal blocks to Coal India (CIL). But the Delhi High Court has stepped in and instructed it not to hand over the mines.
The controversy surrounding these coal blocks should allow the government and other stakeholders to reassess the facts. The government should understand that CIL itself has been a non-performer; it has not been able to make any significant contribution towards increasing production from its mines. Moreover, it sells coal at government-notified prices, which are far less than the market price or the price derived through e-auction of coal. This essentially means that these four already operational blocks will not bring in anything significant to the government exchequer if they are mined by CIL.
So the lesson for institutions like the Supreme Court and the Comptroller and Auditor General of India — that criticised the nomination method for coal allocation — is that changing the auctioning route cannot cure all economic ills in the country.
Biddings in all sectors have been rigged in the past. Sometimes, winners bid aggressively to win and later ask the government to change the terms and conditions of the contract, as was the case in Ultra Mega Power Projects. And sometimes, they bid conservatively, like in the present case of coal blocks, which raises questions over the secrecy of the submitted bids.
(This story was published in BW | Businessworld Issue Dated 20-03-2015)
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