Second thoughts: Were the NDA's coal auctions really that transparent?

Many aspects of the coal auctions, and also the way some auction results were cancelled, raise doubts about how transparent the recent coal auctions were

hidden May 11, 2015 07:47:42 IST
Second thoughts: Were the NDA's coal auctions really that transparent?

By Shalini Singh

Everyone believes the the recently held coal auctions were “transparent”. This is not only because Coal Secretary Anil Swarup chants the word like a mantra. Auctions have become synonymous with transparency after the 2G telecom scam controversy led to the hugely successful and transparent 3G and 2G spectrum auctions.

In 2G, the Supreme Court cancelled, in February 2012, 122 telecom licences for being “arbitrary and illegal”. In September 2014, the Supreme Court cancelled 204 coal permits on the same grounds, stating that these “consequence proceedings are intended to correct the wrong done by the Union of India”. Both the Rs 1.76 lakh crore 2G and the Rs 1.86 lakh crore coal scams were the outcome of the government’s opaque and discretionary decision-making process. The only difference was that while the 2G judgment mandated telecom licences to be auctioned, in coal, the blocks were handed over to Coal India Ltd (CIL) to manage.

Second thoughts Were the NDAs coal auctions really that transparent


The Coal Ministry announced its decision to auction the coal blocks, taking needless credit for the decision, since the MM(RD) Amendment Act, 2010, Section 11A, effectively takes the matter out of its hands. It mandates: “The Central Government may, for the purpose of granting reconnaissance permit, prospecting licence or mining lease in respect of an area containing coal or lignite, select through auction, by competitive bidding, on such terms and conditions as may be prescribed, a company engaged in (i) production of iron & steel; (ii) generation of power; (iii) washing of coal obtained from a mine; or (iv) such other end-use as the Central Government may, by notification in the Official Gazette, specify”.

Available on the Coal Ministry website are the names of the blocks to be placed for auction under Schedule II and III and, finally, the names of the successful bidders, but without their winning bid prices. Official disclosure about these auctions is limited to these details and the fact that it was designed and conducted by MSTC – a government enterprise. Everything else that we know about the auctions so far, is, therefore, courtesy selective disclosure by Swarup on Twitter along with repeated affirmations that the auctions were "transparent"..

In the first leg (14-22 February), 19 Schedule II (operating) mines and, in the second round (March 4-9), 14 Schedule III (ready-to-produce) mines were auctioned.

In all, 33 mines for non-regulated sectors like steel, cement (forward bidding), and the regulated power sector (reverse bidding) went under the hammer earlier this year, fetching revenues of Rs 2.35 lakh crore. While initially this figure appeared dazzling, it was later revealed that this includes royalties, state taxes and Rs 70,000-90,000 crore in consumer tariff reductions (subject to additional transportation costs) over a 30-year period.

But what was never made public is the auction design; how many and which companies applied; technical and financial parameters for the qualification of bidders; grounds for disqualification (especially if all bidders are from different sectors); bid prices at different stages; or the parameters for determining the floor price for each mine (which would logically be calculated based on the geological reserves and extractable coal minus mining costs). What little data is provided is incomplete, misleading or contradicts the government’s own data of 2012.

For example, 2012 data show Gare 4/7’s geological reserves as 156 million tonnes, while the MSTC Corrigendum to the Mine Summary updated for the auctions shows just 67.149 mt. The mine was earlier with Sarda Energy & Minerals Ltd (SEML), a sponge iron company that requires superior grade coal. Though categorised as a non-power block, the grade of coal for the auctions has been listed as ‘G’, which is the most inferior of all grades. This doesn’t add up, considering that SEML was selling coal to sponge iron and cement firms and non-power users are unable to use, and therefore do not buy, ‘G’ grade coal.

Additionally, Gare 4/7 went to Monnet Ispat for Rs 2,619 a tonne while the prevailing CIL price for coal is roughly Rs 900/tonne. Clearly, Monnet Ispat would not have bid so high for ‘G’ grade coal had it not been well aware that the block contains both additional reserves and better grade coal.

Similarly, Meral has no forest land, according to its mine summary report (which reduces the mining cost). Meral additionally has ‘C’ and ‘D’ grade coal whose CIL price is around Rs 2,000-2,800 a tonne and even ‘A’ grade deposits, though quantities are not specified. However, this lucrative block went to an unknown company called Tirumala Industries for a bargain basement price of Rs 727 a tonne. Tirumala’s project capacity or end-use remains a mystery.

Surely, these details are important in an auction format in the interest of “transparency”, especially considering that the coal scam was entirely about companies scaling up end-use project capacities to secure coal blocks and coal linkages and the government using discretionary powers for allocation?

The government, which reserves the right to accept or reject bids, then went on to place a total of nine bids – four in schedule II and five in schedule III - under re-examination on grounds that the bid prices were “too low”, alleging cartelisation.

These include Jindal Power - Gare Palma IV/2 & 3 in Chhattisgarh for Rs  108 per tonne; Tara Chhattisgarh for Rs  126 per tonne; JP Associates - Mandla South Madhya Pradesh for Rs 1,852 per tonne; Balco - Gare 4/1 for Rs 1,585; Hindalco - Dumri Jharkhand for Rs 2,127 per tonne; BS Ispat - Marki Mangli-III, Rs 918 per tonne; Usha Martin - Brinda & Sasai Jharkhand, Rs 1,804 per tonne; and Tirumala Industries - Meral Jharkhand, Rs 727 per tonne. This information, too, became public on Twitter.

Eventually, the “low” bids for five blocks were accepted while Balco’s bid for Gare Palma 4/1 and Jindal Power’s bids for Gare Palma 4/2, 4/3 and Tara coal blocks were rejected and sent to a Nominated Authority - a joint secretary in charge of the tender and auction process in the coal ministry – for review.

This led a disgruntled industry to rightly ask: if the auctions were conducted to discover the ‘real’ value of coal through a ‘transparent’ process, why was the government questioning its own process?

After going through the report filed by the Nominated Authority, the Delhi High Court also observed that the government’s decisions to annul the bids were unfair since there was no evidence of cartelisation, and asked why the government was not naming and shaming those it suspected of being involved in such cartelisation. It concluded that the "nominated authority is a fair person, but decisions the government is taking are "unfair".

Though the government does enjoy the power to reject bids, it may not have been applied uniformly, since blocks like Meral also went for a “low” price but were not cancelled.

The government has not revealed what prompted the re-evaluation of bids. If a complaint of cartelisation was the trigger, who filed it? We don’t have a clue why five of the nine firms under re-examination for “low bids” eventually sailed through. The enquiry report filed by the Nominated Authority in the High Court for the remaining four bids has not been made public. Certainly, “transparency” would have helped us evaluate whether discretionary powers were in play or not.

Meanwhile, the government promises that the process for auction and allotment of the remaining lot of coal blocks that the government has taken up under the Supreme Court order will be completed by March 2016 in a similar “transparent” manner.

The 2G judgment cancelling 122 illegal telecom licences highlighted the issue of “public trust”, stating: “Public interest doctrine enjoins upon the government to protect the resources for the enjoyment of the general public rather than permit its use for private ownership or commercial purposes.”

At the heart of the public trust doctrine is the limits and obligations placed on government agencies as administrators on behalf of all people, especially future generations. The Coal Ministry would do well to remember its obligations, especially towards burying opaque and arbitrary decision-making for good.

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