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Coal auction norms anti-cartel, restrictive

The government's maiden attempt to formulate rules for mass e-auction of coal blocks appears to be a tough challenge. Several norms for bidding including those which have been put in place to prevent possibilities of cartelisation in the auctioning process have drawn the ire of government's own top officials who find the conditions restrictive with some flagging the risk of allegation of discrimination.

They have also criticised the norms for pricing of the coal.

The norms mention that in the first qualification stage, the bidders will offer preliminary price offer and technical bid. After evaluation of the technical bids, the pre-qualified bidders will be shortlisted. The preliminary price offer of only the pre-qualified bidders will be opened and ranked on the basis of diminishing (in case of power sector) or increasing price offer (for non-regulated sector). In the financial bid stage, top 50% of the qualified bidders thus ranked shall be allowed to participate in e-auction.

"Such provision is kept to avoid cartelisation by the bidders in cases where the number of bidders for a single block is more. It was felt by participants that such conditions of selecting only top 50% on the basis of their financial bids in the qualifying stage will be restrictive. Further, there is no precedence for such type of bidding process," said a note prepared by the ministry on the proceedings of a meeting to discuss the modalities of the auction.

The meeting was attended by secretaries of ministries such as power, coal, economic affairs and steel, apart from senior officials of Central Electricity Authority and the department of industrial policy and promotion.

It was also brought to the notice of the ministry that bidders who are technically qualified but don't come in the list of the top 50% preliminary price offers "may challenge the auction process" alleging that they were unfairly denied the chance to participate in the financial bids in the second stage.

Also, in cases where the number of bidders who qualify technically are not many, selection of the top 50% will become impractical.

On the issue of pricing, it was felt that a single floor price for the underground mines (where costs of operations as well as quality of coal are high) as well as surface mines is not rational.

"It was suggested that the ministry of coal should examine some sample cases to determine realistic value of floor price for underground and opencast mines separately," the minutes of the meeting said.

They opposed the calculation of intrinsic value of mines on the basis of average notified price of Coal India as such prices "may not reflect the realistic picture".

The suggestion to calculate the intrinsic value of a particular mine on the basis of coal available from a similar mine of Coal India was however shot down due to time consuming and cumbersome process involved.

Upfront payment of 10% of the intrinsic value of a mine by a successful bidder has been considered to be too much of a burden for large mines. Hence it was decided that the payment could be brought down to 7.5%.

Source: DNA