Coal news and updates

One of the most touted success stories of the National Democratic Alliance (NDA) government at the Centre came in for criticism on Tuesday, with the Comptroller and Auditor General (CAG) pointing out loopholes in the bidding mechanism that restricted competition and allowed companies to put in multiple bids for coal blocks.

 

Besides, the CAG said there was under-determination to the tune of Rs 382 crore in the upfront amount that the government received upon allocation of mines.

 

 

 

The CAG said the loss was because of under-determination of floor prices in the case of six mines allotted to the non-power sector, lower upfront payment for 15 mines, and revision in fixed rates for all nine coal mines meant for the power sector.

 

In its report presented in Parliament on Tuesday, the CAG lauded the new mechanism for e-auction of coal mines and said it was “an improvement over the earlier system and attempted to incorporate the principles of objectivity, transparency and fairness in allocation of natural resources to private sector companies”.

 

Some systemic and procedural issues, however, needed to be addressed.

 

The statutory auditor pointed out that in 11 out of 29 coal mines successfully e-auctioned in the first and second tranches, the number of qualified bidders were from the same company.

 

“In a scenario, where the standard tender document allowed participation of joint ventures and simultaneously limited the number of qualified bidders which could participate in the e-auction, audit could not draw an assurance that the potential level of competition was achieved in the stage-II bidding,” the report said.

 

A senior government officer, however, said as only 6 per cent of the qualified bidders were joint ventures companies and only one successful bidder was a JV. It was clear that this provision did not restrict competition. In the third tranche, the Ministry of Coal amended the clause of joint venture participation with the objective of increasing participation, it added.

 

The government itself had rejected bids for three blocks since they were not in sync with bids for other blocks. Of the 34 coal blocks auctioned in two phases, the letters of allocation for three blocks — two of Naveen Jindal-promoted Jindal Steel & Power and one of Anil Agarwal-promoted Balco — were not signed, after review of eight low bids, on March 20, 2015.

 

JSPL has bid the lowest in both the phases for end-use power. Balco, on the other hand, was the lowest bidder in the unregulated category. The next day, JSPL moved the Delhi Court, challenging the government decision.

 

Officials said the Delhi High Court vie its order of February 2015 in Sharda Energy and Minerals Ltd versus Union of India case upheld the auction methodology. The ministry of coal subsequently sought the audit opinion on the issue of multiple bids. Since the opinion did not come, the ministry of coal referred the matter to attorney general which said since there was no appeal made in the case, the High Court order had finality to it.

 

The statutory auditor said there was a need for framing of broad guidelines including various parameters considered relevant by the ministry of coal for evaluation of final bids prices to enhance transparency of the bidding process. Besides, it said there was inadequate audit trail and non-linking of specified end-use plants with the registration IDs though officials maintained there was no case of multiple bids being placed from a single end use plan in contravention of the tender documents.

 

CAG also pointed out inconsistencies and inaccuracies in computing of intrinsic values. The Cabinet Committee on Economic Affairs had said the notified price at which Coal India's subsidiaries sell coal should be considered for calculation of intrinsic value of the mine. In the case of Moitra coal mine contained washery grade coking coal, which was to be washed out before utilisation in the specified end use plant (SEUP). The approved mining plan for the mine contained provision for installation of washery for coking coal produced. However, this aspect was not considered for calculation of intrinsic value. This resulted in under-determination of upfront amount and floor price of the mine, the report said.

 

Disqualification of West Bengal Power Development Corporation Ltd (WBPDCL) from participating in the auction of Sarisatolli and Trans Damodar coal mines, on the basis of it being a prior allottee and not depositing the additional levy within the prescribed time, was not as per the existing provisions, it said.

 

Power sector coal mines were auctioned with the objective of providing cheaper coal and augmenting electricity production to benefit the consumers. However, the report said the risk of non-compliance with contractual obligations was high due to the vulnerabilities such as stipulation regarding non-recovery of various charges from power consumers, weaknesses in the monitoring system and limited period of bank guarantee. This could adversely affect the sustainability of the model in the long run.

 

Exclusion of payment of additional premium for coal used for generation of merchant power, where the tariff is not regulated, resulted in a scenario where the power producers would be paying lesser amount to the government for merchant sale of power as compared to power sold under regulated rates under various power purchase agreements, CAG said.

SOurce: Business Standerd