1. ‘No malpractice’, yet bids for 3 coal blocks rejected

‘No malpractice’, yet bids for 3 coal blocks rejected

JSPL denied two blocks, Balco won’t get one it had won

By: | New Delhi | Published: March 22, 2015 1:07 AM
coal allocation, coal allocation news, coal allocation bill, Parliament, Rajya Sabha, coal Bill, commercial mining, Mines (Special Provision) Bill 2015

All the three blocks, the bids for which have been rejected by the government, are in Chhattisgarh. Government sources said these blocks were unlikely to be re-auctioned. In all probability, they could go to Coal India. (Reuters)

As a measure of caution, the government has decided to reject the results of the competitive bidding for three of the eight coal blocks it had put up for review, even as it found no malpractice or collusive bidding, but only a “deviation from the trend”.  In the case of the other five, the winning bids have been approved.

The decision comes as a big setback to Naveen Jindal-promoted Jindal Steel and Power (JSPL) and Anil Agarwal’s Balco. While JSPL has been denied the Gare Palma IV 2 & 3 and Tara blocks, Balco won’t get Gare Palma IV 1 block it had won.

All the three blocks, the bids for which have been rejected by the government, are in Chhattisgarh. Government sources said these blocks were unlikely to be re-auctioned. In all probability, they could go to Coal India.

The government, which announced the decision  late on Friday night, cited “lower-than-normal winning bid prices” in case of all the three blocks and abnormally quick completion of the bidding in case of  Gare Palma IV 2 & 3 and Tara blocks.

Reacting to the development, Naveen Jindal tweeted: “Disappointed to know that our highest bids for two coal blocks haven’t been accepted by the government despite adhering to all the rules and regulations. The auction was conducted transparently. It’s surprising that government doesn’t have faith in its own process and selectively rejecting highest bids.”

Mines-disapproves

Chhattisgarh will be deprived of potential revenue of R11,700 crore over a 30-year period due to the Centre’s decision. Of the eight blocks for which the bids were reviewed, two (both won by JSPL) were earmarked for the power sector and six were reserved for the unregulated sectors.

A government source told FE that the decision to not recognise the auctions for the three blocks stems from evidence that bidding for these mines bucked the trend observed in respective sectors. The winning bids offered by JSPL for both Gare Palma IV 2 & 3 and Tara blocks were much lower than final price offers for other blocks with similar grade of coal earmarked for the power sector. In case of Gare Palma IV 1 bagged by Balco, the winning price was found to be lower in comparison to contiguous blocks with near-identical quality of coal, the source added.
JSPL had managed to win two blocks at the lowest prices in both Schedule 2 (functional) and Schedule 3 (about-to-produce) blocks for the power sector. The company bagged the operating Gare Palma IV 2  & 3 for R108 per tonne even as the final bid price for blocks in the sector ranged from R108-1,110/tonne.

Similarly, the company grabbed Tara (Schedule 3) block for R126/tonne, while final prices for power blocks ranged from R126-770/tonne at the end of the auctions.

As for Gare Palma IV 1 won by Balco at R1,585/tonne, the price was found to be much lower than adjacent blocks of Gare Palma IV 7, IV 4 and IV 5 that attracted final bids of R2,619/tonne, R3,001/tonne and R3,502/ tonne, respectively.

Another government source, speaking on the condition of anonymity, told FE  “It is true that we didn’t find any conclusive evidence of collusion or malpractice in the bidding process, but there are clear deviations of trend with regard to unapproved blocks. While the government is not implying any wrongdoing for outlier trends, these deviations could be questioned at a later stage. Given the evidence before us, the decision could have gone either way, but the government has consciously taken a conservative decision to not award these blocks to the winners.”

Apart from unusually lower final bids in comparison with similar mines, the blocks won by JSPL also witnessed only one or two rounds of bidding after the bids opened despite major companies like Adani Power and GMR Energy participating as competitors. There was enough evidence of somewhat abnormal trends in case of unapproved blocks for the government to use its discretion to not notify the winners, the source added.

A JSPL spokesperson said: “The effective value of our bid for Gare Palma IV/2 & 3 stands at R808 per tonne, duly factoring the complete discount on the ceiling price of R700 per tonne and additional premium of R108 per tonne. The effective value of our bid for Tara stands at R1,096 per tonne, duly factoring the complete discount on the ceiling price of R970 per tonne and a additional premium of R126 per tonne.”

Direct tariff benefit of approximately R27,660 crore would be accrued based on the company’s bid (R11,469 crore from Gare Palma IV/2 & 3 and R16,191 crore from Tara coal block respectively). The gross value of the bid is pegged at up to R58,572 crore, the spokesperson said. In case of Gare Palma IV 2 & 3 and Tara blocks, the previous allottee will have to vacate it on March 31, as per an SC order.

Tags: Coal Auction
  1. M
    Mangoman
    Mar 22, 2015 at 9:24 am
    Obviously for JSPL, the scenario is "so close yet so far". If the bids of JSPL has an "effective value" of Rs. 808/ton, then I'm sure the "effective value" of all other operators' bids can similarly be marked-up and the "effective value" for them will be at least Rs. 800-1000 more per ton than the bid-price!! Naveen Jindal has many corruption charges against him and I'm "disappointed" he's still outside in a BJP-regime, possibly because of his brother Sajjan Jindal's proximity to guru Sri Sri Ravi Shankar! When the coal blocks were de-allocated about 4-5 months ago, I remember the Jindals announcing they are shelving investments worth $10 billion, apparently in an attempt to arm-twist the govt.!! Congress indulged in blatant crony-capitalism, Modi shouldn't indulge in a more "subtle-version" of it!! There's absolutely no hard-and-fast rule that all power producers/manufacturers must have their own captive-mines!! They can always buy coal through compeive bidding from domestic/international suppliers!! The auction "floor-price" for all blocks should be linked to current market-price for same-grade coal (may be at a small discount); if they are sold much below market-price, whether it's Adani or GMR or Jindal, Modi is indulging in corruption!! Remember, the CAG has already made oblique remarks against Modi-Adani deals, where it maintained there were "irregularities, but not illegalities." I'm not very sure about the difference in "irregularity and illegality," possibly the Comptoller was playing with words!!!
    Reply
  2. J
    joseph
    Mar 22, 2015 at 10:36 am
    Can govt. do it ? What if Jindal challenges this decision in court ? I really hope govt. has some defense. Its true the deviation is big. It definitely looks sketchy but unless u can prove it, it will look like a witch hunt against Congress supporter. Court will demand proof and govt. could end up looking like UPA and a bad image among investors who r now slowly and slowly thinking about investing in India. I am saying GOI shouldn't do what they are doing, i am just saying u better have a good reason to support your case and saying the bids r too low, well its not a defence to go back on a contract as its always a risk in auction.
    Reply

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