Industry bodies express ‘shock’ over decision to hold back 8 coal blocks

Write to coal ministry citing transparency of bidding process in auction

As the fate of eight coal blocks that were held back after the auction on account of attracting lower-than-normal winning bid prices remains uncertain, industry bodies have written to the coal ministry expressing ‘shock’ over the government’s decision, citing the transparency of the bidding process.

The government decided to delay the notification of winners of 8 mines — 3 from phase 1 and 5 from phase 2 — and asked the nominated authority to re-examine the bid process for any irregularities. Sources privy to the report of the nominated authority, which has been submitted to the government, have said that it has not detected any wrongdoing on the part of the participants. A final decision on these blocks is expected on Friday.

The government, however, has said that it could reauction these blocks to extract better value from them even if the auction process was clean.

Two of the blocks in question belong to Jindal Power which had won them for use in the power sector at the lowest rate among blocks earmarked for this category. The other blocks belong to companies like Balco, Usha Martin, Hindalco, Jaypee Cements and Tirumala Industries.

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“We view this development as a regressive step and feel that an unfair treatment is being meted out to industry members who have contested fairly and in good faith,” Assocham wrote in the letter.

Additionally, another letter sent to the coal ministry by Domestic Coal-based Power Producer Association (DCPPA) explained that each block had unique conditions that determined its price and stressed that it was unfair to make a comparison.

“The fact that many blocks did not even receive the minimum number of bids (three bidders as required according to tender documents) and has to be withdrawn from auction process shows that not all block will have the same value,” DCPPA added.

The two industry associations also pointed out that each block earmarked for the power sector had been won in a forward auction on an additional premium payable to the state government. It implies the bidders would not be paid for mining of coal and would additionally be paying the premium per tonne along with royalty, taxes and coal cess, which comes to around R500/tonne to the government.

A final price offer of zero and an auction on additional premium means that in the energy charge component of the power tariff would be absorbed by the company, the letters said.

“In this scenario, the government’s decision to review bid prices is inappropriate and arbitrary. This delay in awarding the coal blocks to the winning bidders is causing uncertainty to the industry and grave concern for investors. It is also giving vested forces an opportunity to question the transparency and justness of the auction process and would affect the success of future auctions,” the letters said.

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First published on: 20-03-2015 at 02:55 IST