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Existing power agreements to be revised downward: Coal Secy

The government is re-examining bids for eight coal blocks, with Coal Secretary Anil Swarup terming the bids as ‘outliers’. The auction process for these eight blocks was over quickly and the winning bids were much lower than those in the first round of auctions. “On the face of it we felt that the bids that were offered were not at the same levels as similar blocks in the same group,” Swarup said in an interview to CNBC-TV18. He however declined to say if the government suspected cartelization, adding that it was too early to say if the bids for these 8 blocks would be cancelled. "There is a pattern and if somebody falls outside that pattern that needs an examination. Whether it is a cartelisation or not is not something which I can say as of now," he said. The government’s move has come as a surprise to observers as well as participants. In the first round of auctions when companies had bid aggressively, Swarup himself had gone on record to say that the government would not interfere even if it felt the bids were aggressive. Swarup reiterated that the power companies will not be allowed to pass on the coal block cost to consumers through higher tarrifs. In fact, companies which have rebid for the coal blocks will have to lower the tarrifs quoted in the earlier power purchase agreements (PPAs). "Right from day one I have being saying that existing PPAs will be re-opened and tariff adjusted downwards in the case of reverse bidding," Swarup said. "The idea of having reverse bid was basically to impact the tariffs in the negative sense in the sense of reducing the tariffs and that is what government is very clear about," Swarup said. He said the government would be allotting 43 mines to public sector entities by this weekend. States are likely to reap Rs 2.07 lakh crore from the coal block auctions, Swarup said. On Coal India, he said the PSU behemoth was likely to produce around 500 million tonnes this fiscal, up 8 percent over last year. Below is the transcript of Anil Swarup's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18. Latha: How many blocks are being reviewed for their auctions? A: In the schedule II we were looking at four mines and in schedule III we are looking at five mines. Not exactly reviewed because there was no decision taken, review happens when you take a decision and review it. In this case we are examining some details. Prima facie we found that it requires a reexamination so it has been reexamined that is about all. Latha: Give us the grounds for this doubt? A: On the face of it we felt that the bids that were offered were at not at the same levels as similar blocks in the same group. However, that was not a decision per se that was first impression and that needed to be examined and that is why it has been examined. Sonia: Are you noticing any evidence of cartelisation at all? A: As I said this is a process underway. I would not like to comment on what is going on the file. A decision will be taken in couple of days and you will get to know what has happened. Latha: For a bidder and an observer of the scene, when the prices were very high you were on this channel saying that you can not understand why people are bidding such unrealistically high levels when there is enough coal and enough coal blocks. And now when the prices are low there is reexamination. So that does make life difficult for the bidder, doesn’t it? A: Life is in any case very difficult and for coal blocks as you would have understood in the past so many years it has been extremely difficult. We are trying to make it easy. If there is a trend that is available, it is not a question of high or low. If there is an outlier or a couple of outliers it is worthwhile examining it before taking a call. We believe that we should not rush into things. We are moving pretty fast but if there are a couple of outliers that needs bit of an examination. I do not think that should be a major cause of a concern. Given the background in which coal auctions have happened in the past, given the background in which coal has been handled in the past few years it would be worthwhile looking into details before coming up with a judgment.
onia: Can you tell us the names of which coal blocks are being examined currently?

A: I would not like to go into individual cases. As I said there were outliers who did not conformed to be usual trend that was there and it has been examined. For me to go in to specific individual details will not be appropriate at this stage.

Latha: Basically it is then a charge of cartelisation is it or a suspicion rather?

A: You keep pushing me into using this word cartelisation; certainly we have not looked at any such things as cartelisation or anything of that sort. I have used the word ‘outlier’ - there is a pattern and if somebody falls outside that pattern that needs an examination. Whether it is a cartelisation or not is not something which I can say as of now. We are certainly not examining these aspects. We are examining basically if there is an outlier what is the reason for it and we will take a call finally.

Sonia: If it is true that there is some semblance of cartelisation that comes up in the examination then when will the decision of rebidding be taken and there is some talk that two of  Jindal Steel and Power (JSPL) coal blocks could be rejected because of this. If that is true then will JSPL be allowed to bid for these blocks again?

A: As I said we are looking into facts as the stand and once the facts come to fold we will take a call on it. I keep repeating it will not be appropriate of me to comment on individual cases. I have very clearly mentioned to you that it is an account of some outliers that we are examining those cases and it won’t be very late before we take a decision on that.

Latha: Can I remind you of the other conversation we had about power companies bidding too low for coal and your ministry saying that they will have to pass it on in the form of lower power tariffs. Now is this always possible because very often it is a state subject as well another ministries area. Will you be able to force it and ultimately power is bid for in a competitive scenario? How can the government force down lower prices?

A: We do not force down anything, government is well within its rights to issue an advisory to the regulator stating that this was the context in which auctions have happened. Now if this was not to be passed on to the tariffs then what was the purpose of having auctions? They could have easily passed on the higher bids to the ultimate tariff. The idea of having reverse bid was basically to impact the tariffs in the negative sense in the sense of reducing the tariffs and that is what government is very clear about.

Fortunately the power and the coal ministry are administrated by the same minister and fortunately we had a very intensive discussion with that ministry before we took the call on reverse auction. We are very clear in our mind that this has to be passed on to the consumer.

Latha: I take your point but there are actors involved other than just the central union power ministry. There are state ministries involved, state Discoms involved, rival governments involved therefore will it also be possible?

A: Which government would want the tariffs to go up whether rivals or not rivals.

Latha: It could be a viability issue for the company?

A: Viability for the state governments, viability for the state Discoms. Whose viability are we talking?

Latha: My only point is that the central government does not have the last call so it can only be an advisory.

A: It is not a question of last call. It is the question of what we have been stating right upfront from the beginning. The whole purpose of reverse auction was to bring the bids down. Of course there would be some people who would want to have the best of both the worlds. We could have easily had forward auction in that if that were the case.

Latha: You will ensure power purchase agreements (PPAs) are reopened?

A: They will certainly be reopened that is the deal. I would like to go on record; right from day one I have being saying that existing PPAs will be reopened and tariff adjusted downwards in the case of reverse bidding. That is our stand right from the beginning.

 Latha: The PPAs are not rebid they are just re-opened to adjust for the lower price?

A: The existing PPAs will be re-opened, future PPAs obviously the bidding will happen.

Sonia: How do you hope to maintain transparency in the auction because most of the coal blocks that are being won are won by a single group company where there are multiple bids from different companies of the same group? How do you hope to ensure transparency in the auction going forward?

A: Transparency by definition means that whatever is visible should be visible to everyone that is what transparency all about. The fact that you know that there are multiple bids by them is an indication that we were transparent. However, that does not mean how the bidding will actually happen it merely means that whatever is happening is happening and known to everyone that is what transparency is all about.

Latha: What are you expecting  Coal India  to produce this time year now that we have got 15 days left?

A: They should approach close to 500 million tonne give or take a few million tonne here or there.

Latha: That will mean a 10 percent increase in output right? Last year they did 462 million tonne.

A: Not exactly 10 percent, I would look at about 7-8 percent increase over previous year which I would believe is a record in past so many years, it has not grown that way and very interestingly today no power house is short of coal. So that is also a very unusually positive event that has happened.

Latha: Your promise was doubling in five years which means you have to do 20 percent next year?

A: That is still a promise. I did not have a magic wand to do it this year.

Latha: I am not trying to challenge you for things past. I am asking you your game plan for FY16. Do you have a target for FY16?

A: Game plan is very clear. On your channel I have been very transparent, I have been telling what the game plan is. I can repeat the entire game plan. We are working towards it. The past few months have indicated that we are gradually moving in that direction. If the growth was 1-2 percent past few years and we have already reached 7-8 percent, I think we are moving in the right direction. We will try and achieve the targets that we have kept for the next five years. There is a very detailed mine wise plan that has been worked by Coal India, it has been approved by the board and they are now diligently working towards it.

Latha: Since you have a mine wise and a detailed bottom-up plan can you just give us the target for FY16? I mean from 7-8 percent is it 15 percent?

A: For next year the target would be increase of about 10-11 percent, we are looking at 550 to 555 million tonne. So, that is how gradually we will improve. Next year it is 550-555 million tonne that is what we are aspiring for. However, the real growth will come two years down the line because the number of mines will get opened up, the clearance will get faster and it is not merely a question of increasing the output of Coal India it is also question of evacuating that coal.

We are working on a very detailed evacuation plan with ministry of railways. Special purpose vehicles (SPVs) are being signed involving the state governments may be next couple of weeks we will have memorandum of understanding (MoU) signed with states of Odisha and Jharkhand. So we are working towards evacuation plan. To us - that is a very critical factor in terms of taking coal to the destinations, merely producing coal will not help matters.
 Latha: Coal India is signing or railways are signing. Who are the parties signing this SPVs?

A: It will be a tripartite MoU with 64 percent equity coming from Coal India, 26 percent from IRCON and 10 percent from the state governments. The heartening feature is that state governments are fully on board because large number of problems that we have with regard to building of railway lines is with state governments in terms of land acquisition, forest clearance and so no and so forth. However, state governments are fully on board and these MoUs will demonstrate that states want as much to solve the problem as anybody else in the country

Latha: Last time when the railways took money from the state governments they did not deliver on the railways. With some state governments there is that complaint?

A: That is why the money is not going to be delivered to railways it is going to be delivered to SPV which is owned by the state government, railways and Coal India.

Sonia: For these eight blocks that are under review, a total of eight blocks will fresh bids be invited for these blocks or will it be allotted. Is there a chance that it could be allotted to say Coal India for production?

A: You must first understand what has been going on. First of all the process has indeed being transparent that does not mean that we blindly accept the bids that come to us. We are not saying bids are low or high. What I have said and I will repeat again there are few outliers in the context of the trends that we have. It is worthwhile to examine those trends before rushing into a decision. It is premature for me to say that these will be cancelled or these will be accepted. We will cross the bridge when we come to it, if they are indeed are not accepted by the government, if any of them then we will take a call what to do next whether they will be auctioned or allotted to Coal India or allotted to state government. This is a call that the central government can take and will take at an appropriate time.

However, there is no need to rush into taking a decision now as to what we will do once a particular decision is taken with regard to these blocks. We have gone about it in a much organised manner in a manner in the past; we will continue to do so. It might appear to some of the impacted parties that it is not helping them or helping others. It might appear that it is a bit confused, we are very clear in our mind and we do believe that whatever decision we take we should take with due diligence, we should examine it and then take a decision so that later on we do not regret as some of the decision in the past have been.

Latha: When should be know the result of this review?

A: Within this week.

Latha: Should we expect a hike in Coal India prices for fuel supply agreement (FSA) coal anytime now?

A: I have not thought about it as yet and this is a decision that Coal India will take. We have not had time to indulge in that thinking. We are in any case preoccupied with the auction process, which should get over by March 31st then probably we will indulge in all these issue.

Latha: We were given to understand that the central government has allocated mines to the state governments for commercial mining. Is that process has started?

A: We have not allocated any mine to the state governments as yet. This decision also will be taken within this week in terms of the allotment. We have received all the applications from the state governments and state entities. The analysis has been done and within this week we should be able to take a call which mine goes to which state.

Latha: How much is the coal output or the amount of mines that are going for commercial mining in the first tranche?

A: Commercial mining - there is no mine. We are looking at allotting 43 mines for specified end-users. We have not yet taken a decision on allotment of commercial mining blocks.
 Latha: The decision on commercial mining is not expected this week?

A: Certainly not.

Latha: By when should be hear about commercial mining?

A: After we are through with this end-use stabilisation mines we will then think about it and see when how that would happen.

Latha: Approximate time period?

A: I do not believe in approximation.

Latha: A specific time?

A: No specific time is there because whether it is review or reexamination of coal blocks - these are questions that cannot be answered that by February 16th next year, I will take this decision. It does not happen that way. You have to examine an issue, understand that issue and then determine a timeline. There are timelines that we determine for auctions and we are before you. I gave you specific timeline but that was a conscious decision after examination. I cannot off the cuff say that by March 12, 2018 and a half the commercial mining will happen it does not happen that way.

Sonia: Where the coal auctions have reached up until now in the sense how much has the government earned through these auctions and there were some indications that you will proceed with the auctions further only if the coal ordinance is passed in the Rajya Sabha. We do know that the Rajya Sabha is working overtime. Should we hear from them soon on the passage of the coal ordinance?

A: Of the mines that have been auctioned so far the total estimated amount that will come to states would be around Rs 207,000 crore and apart from this about Rs 97,000 crore by way of tariff concessions. So we are looking at a benefit of around Rs 300,000 crore through these auctions so that is one.

Number two the auctions relating to schedule II and schedule III mines have already happened and vesting orders should be issued on March 23rd. For the mines that are being reexamined maybe couple of days later, whatever the decision is.

The fresh round of auctions will depend on whether the bill is passed in the parliament. If it is then the fresh rounds should beginning in April end or May first week. If it does not then we will have to wait for either bill to be passed in the parliament or a fresh ordinance before we start the fresh round of auctions. As far as the allotments are concerned as I mentioned there are 43 blocks that are being considered for allotment and this decision should be taken within this week.

Latha: What is your ministries opinion in terms of the chances of the bill being passed?

A: There cannot be an opinion we are hopeful that it will be passed. Opinion will be that of the parliament they will decide whether it is passed or not. As far as we are concerned we are hopeful that it will be passed so that we can carry on.

Latha: Did you hear from the select committee?

A: No, they have not given us any formal recommendation and in any case they won’t give it to us, it goes to the parliament.

source:http://www.moneycontrol.com