Editorial: Getting coal auctions right

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Published: February 13, 2015 1:47:01 AM

Use revenue-share to speed up the process

Given the large amount of stranded power capacity, it is understandable the government chose to reclassify the coal blocks to be auctioned, on the basis of their end-use, according priority to the power sector. By reserving the blocks with a higher reserves but a lower grade of coal for power plants, the government was keeping in mind the larger interests of the economy. It is also understandable that the companies that had been allotted coal blocks for a certain end-use but cannot now bid for them are apprehensive of having to bid aggressively at the auctions. Not just that, the mines that they win might not be suitably located causing both inconvenience and cost overruns. As JSPL pointed out in its petition, it has already made a fairly chunky investment, of R20,000 crore, based on the coal mine allocated to it. It is also possible they may face some additional delays, in the case they win bids for mines that aren’t operational yet.

Unfortunately for the government, the courts seem to share the concerns of the companies and appear to be of the view that the choice of end-use for a coal block was done in a somewhat arbitrary fashion; on Wednesday, the Delhi High Court directed the government not to auction two coal blocks—Utkal B-1 in Odisha and Gare Palma IV/6 in Chhattisgarh, allotted earlier to JSPL. On Thursday, another court asked the government not to auction the Gotitoria mine, which is operational. There are others who have gone to court disputing the value of land.

While the court’s directives so far might not altogether disrupt the auction process, since a couple of the mines aren’t operational yet, they are nonetheless worrying. Hopefully, there will be no more litigation and the government’s technical committee will be able to satisfy the courts on the rationale for the methodology; it would be unfortunate if the auction process was to be stalled. One way out of this impasse would be for the government to put more blocks on auction, specifically for the power plants. While officials have pointed out that the state-owned surveyor is behind schedule on its prospecting, the way to overcome this could be to allow commercial mining on a revenue-share basis. That would ensure adequate supply of coal over the next few years, which is after all the objective. Meanwhile, the government needs to tread carefully, thinking through the rules it puts out. Changing conditions at the eleventh hour, as it did for the fixed amount payable—it said the value could be revised upwards—will only upset bidders’ calculations and force them to litigate.

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