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Coal block auctions: Firms already mining should have got a better deal

The government's move to call upon actual users, be steel, cement or any other sector that requirescoal, to bid for coal mines is on the face of it praiseworthy. This would then put up 214 blocks the licenses for which were cancelled by the Apex Court recently on the block. And included in these 214 blocks would be the 40 or so blocks in which work is already under progress by way of production of steel, power or cement.

The proposed ordinance reportedly contemplates freedom for anyone to bid for these 40 or so blocks as long as the entity is the actual user. The problem arises if the existing owner to whom the block was allotted gratis by the UPA government is pipped to the post thanks to aggressive bidding.

The proposed ordinance reportedly has an answer---reimbursement of money already invested in the plant plus 12 percent per annum interest thereon. This could be messy as the seemingly rational solution could throw up problems of its own. How to verify the investment till date? Will the bank loans be a part of such investments in the sense that the winner will have to bring enough to pay of the bank loans as well? In other words, will he have to start on a clean state except that he would inherit a going concern which he would have to finance afresh? Normally balance sheets and its concomitant can be relied upon, but in this country balance sheets have often been found inaccurate thanks to gold-plating of investments and over-invoicing for the purposes of receiving kickbacks. This could very well open the proverbial Pandora's Box.

The winner might go to court disputing the claim of actual investment made by the present owner. The court could appoint its own investigators or auditors but that does not mean the final outcome would be satisfactory to all concerned. Alas the government in its attempt to break the logjam arising out of cancellation of coal blocks by the Supreme Court has unwittingly brought in fresh crop of potential problems.

At any rate, the reported move amounts to compelling a winner of block to buy the existing factory or facility surrounding the coal block as well. This amounts to either all or none approach, a package approach which is bound to invite the ire of any fair-minded person including courts. It is just plain unfair to compel anyone to buy a package, much like a soft drink manufacturer saying if you want 5 crates of a popular drink you must by a crate of unpopular one as well.

The winner can say had he got a block untrammelled or unencumbered by such assets, he would have literally and figuratively started on a new slate. Why should he carry the baggage of an inefficient producer? It is all very well to say he in that case should not evince interest in the blocks on which a free-loader is already sitting, but then it would reduce the e-auction to a farce with the existing owner walking away by bidding just a shade over the reserve price. This would be like the case of DLF in Gurgaon as vividly brought out by the Punjab and Haryana High Court last month while cancelling the allotment of land to it.

The only fair and non-problematic solution in the event is to make an exception for those 40-odd industries where operations are already on. To be sure, they should not be allowed to get away free without paying anything. They must be made to pay for the coal they have extracted. The price for that could be Rs 295 per tonne determined by the Supreme Court on the basis of objective calculations made by the CAG. Of course, this rate cannot be cast in stone or remain static but should be subject to revision on the basis of a price escalation clause in favour of the government. This arrangement would involve installation of a bean counter on all these 40 odd blocks but that any day is better than pitting the buyer and seller of existing facilities in an unseemly battle.

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Updated Date: Oct 22, 2014 08:58:29 IST