Coal news and updates

The Centre has done a good job in moving swiftly to auction coal blocks that had been cancelled by the Supreme Court in September 2014 and even the Comptroller and Auditor General (CAG) has acknowledged that. But the electronic auctioning process, although mostly transparent and fair, was not without flaws. The Centre would do well to take the observations of its auditor in the right spirit, rather than get defensive. It is well accepted that every new process would have some lacunae, no matter how much care is taken. Some errors may creep in by oversight and others when racing against a deadline. Yet others are deliberate. In the case of coal mines auctions, the CAG has observed a few systemic and procedural issues, which if addressed, can further improve the electronic auction mechanism. Principally, the CAG found inconsistencies and inaccuracies on the part of the Central Mine Planning and Design Institute Ltd in following government-prescribed assumptions, and various errors in computation of intrinsic values of the coal mines. That can be interpreted as rigging the system and compromising the objectivity of an auction system. These inconsistencies and inaccuracies resulted in “under-determination of upfront amounts in 15 coal mines, under-determination of floor prices in six non-regulated sector coal mines and revised fixed rates in all nine power sector coal mines”, the CAG noted in its report. The monetary loss as a result of undervaluation of 15 mines is estimated at ₹382 crore. This amount pales in comparison with the over ₹1 lakh crore in potential revenue realised by the auctions. The CAG has also raised concerns about multiple bids from the same corporate group, which potentially reduces competition. This concern has already been remedied by the Centre for subsequent rounds of auctions.

 

The flaws of the auction process notwithstanding, it is a far superior method of allocating natural resources compared to the earlier practice of making such allocations through decisions of a screening committee. The primary drawback of the method is that competitive bidding can push up cost of acquisition of natural resources for private sector players and thereby push up prices of products and services offered by successful bidders.

 

Correcting flaws in a system or a process should be an ongoing exercise towards perfecting it. In the case of coal auctions, it is noteworthy that the Centre had corrected some of the flaws much before the CAG report was finalised. However, for an auction system to be flawless and objective from beginning to end, it is also necessary to ensure that the eligibility conditions are as fair as possible. There have been plenty of instances in the government where eligibility conditions were framed in a manner to prevent participation of some potential bidders or to favour some specific bidders. Care must be taken that future auction methods for natural resources are not built on faulty foundations.

Source: Business Like