The Telegraph
Since 1st March, 1999
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Govt digs auction route in mines

New Delhi, Aug. 6: The government plans to auction unreserved coal blocks to end-users and also wants states to follow a similar approach for iron ore, instead of allotments at arbitrary rates to steel units

Plans are afoot to allow captive coal block owners sell their surplus to Coal India, which will do the trading. Small end-users will be allowed to bid for coal blocks as a group.

The new policy will help the government auction blocks that are not exploited by Coal India or its subsidiaries to steel, cement and power companies through competitive bidding.

Auction of iron ore blocks will be a problem since the states, which own the reserves, may not follow the Centre.

States usually link iron ore blocks to steel mills in their territory.

The Centre is opposed to this as it goes against the grain of market logic.

Most steel makers have signed MoUs with state governments on the condition that they get access to reserves.

This has attracted not only Indian steel-makers but also foreign players like Mittal Steel and Posco.

“Normally, steel mills are located near iron ore or coal reserves or near the market... the choice rests with the steel maker. We believe that is how it should be. There should be no market distorting policy moves by state governments,” said senior Planning Commission officials.

The move to auction unreserved coal blocks follows hectic parleys involving power and steel companies. While one group was keen on auction, the others preferred direct allotment as was done for SAIL and Tisco.

Both the UPA and the previous NDA regimes were keen on opening up the coal sector to private mining. However, the Left have stymied such plans.

Officials say competitive bidding can be based on technical, physical and financial parameters.

To help “informed decision making”, no block will be allocated “unless it is explored in detail and an assessment of quality and quantity of extractable coal reserves made”.

The cost of this exploration will be recovered from the successful bidders.

The new bidding system will provide for both financial stakes as well as penalties for not developing the mines. The bidders may compete over production sharing — those who offer the highest share to the government will get the mine.

Successful bidders will have to furnish a bank guarantee equivalent to three years of the production share. If the mine is not developed by then, the guarantees would be encashed and the leases cancelled.

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