The cancellation of the Jindal group's winning bids for three mines in Chhattisgarh - Gare Palma IV (2&3) and Tara - is likely to open a pandora's box of uncertainty for the sector. The NDA government will have to consider whether the objective of getting higher prices by deeming the Jindal bids as below "fair value" will lead to more problems not less.
Ravi Uppal, Managing Director and Group CEO of Jindal Power and Steel Ltd (JSPL), has claimed in an interview to The Times of India today (23 March) that his effective bid values for the mines were Rs 808 per tonne (Gare Palma) and Rs 1,096 per tonne (Tara). He also claims that the effective benefit to government revenues and power consumers would be Rs 58,500 crore.
Give the complicated process of reverse bidding in the case of coal mines earmarked for power, one need not get into the nitty-gritty of his calculations to take a position on whether he is right or the government is.
But the essential point in his favour is simple: Uppal and his company played by the rules set by the government, and if these enabled JSPL to get mines cheaper than some others, it is not the company that can be blamed.
The fine print of the bidding agreements may allow the government to cancel any bid it consider unrepresentative of true value, but the downside is this: if a process widely acclaimed as fair and transparent is now used to scuttle some unexpected results, will it not jeopardise the whole process? This is like cancelling an election because the wrong party has won.
Quite apart from the fact that the matter may now land in court, one maverick result should not end in the government putting a question-mark over its own process.
Here are some additional reasons why the government should reconsider the cancellation of the Jindal bids.
First, there is no guarantee that another auction will produce better bids. What if it produces a lower bid? And even if the next auction gets a higher bid, a Jindal moving court can endlessly delay the process. The next bidder will find that he may have to hire lawyers to protect what he has won.
Second, the problem with comparing one coal mine bid with another is that mines have different costs and challenges. Also, what is attractive to Jindal may be less attractive to someone with a power plant in a different state. Beauty lies in the eyes of the beholder.
Third, the fundamental problem with the coal auctions is the segregation of mines for power and non-power. Once you do this, the mines earmarked for power will draw only power sector players, and this automatically reduces the numbers of bidders (and bid values) for each mine. In the next round, the government should consider doing away with the earmarking process and focus on making all mines as merchant ones. This will fetch the highest bids, and power can be subsidised from some of the revenues earned - assuming the bids for mines will push power prices much higher.
Fourth, any change in declaring what is or is not fair value should be made upfront, and not after the whole process is completed. This is like changing the rules after the game is over. If the reserve price is not the minimum price the government wants, it should state upfront what the new rules for cancellation of winning bids will be. Else, the whole process will sound arbitrary.
Fifth, there is the question of perception. Jindal's owner is aligned to the Congress. If the cancellation is seen as intended to hit a businessman allied to a rival political party, it does not augur well. The purpose of an auction is to show that a government is agnostic to who wins - as long as the process is fair. Maybe Power and Coal Minister Piyush Goyal has no axe to grind in this case, but why risk politicising the process?
Last, any auction will have at least one bidder who may appear to have got a good deal. Auctions cannot eliminate gains or losses from chance.
The only real argument for cancelling a winning bid is clear evidence of match-fixing. A lower-than-expected bid is not proof of cartelisation or pre-arranged bidding.
Updated Date: Mar 23, 2015 11:05:17 IST