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Urgent drill to auction coal blocks

New Delhi, Jan. 5: The coal ministry has speeded up its plan to auction around 27 coal blocks, holding 3 billion tonnes of reserves, in March, under pressure from the Prime Minister’s Office (PMO).

Coal ministry officials said the PMO was insisting on framing the rules and conducting the auctions before the end of the current financial year.

In a press conference on Friday, Prime Minister Manmohan Singh had said, “I was the one who insisted that coal blocks should be allocated on the basis of auctions.”

Officials said Singh had written several notes as early as eight years ago to auction blocks instead of allotting them, a process which is now under the scanner.

The PMO has always maintained that auctions were the best and most transparent way of allocating scarce natural resources such as coal and spectrum.

The auctions were earlier slated to be held in January but got delayed after the ministry of environment turned down the demand of the finance and coal ministries to issue letters of comfort to prospective bidders that it would give all the requisite approvals within a fixed time frame.

The environment ministry is opposed to giving the letters of comfort for two reasons. Firstly, these letters are preliminary clearances by themselves. Second, they bind it to give the clearances within a time frame, failing which it might have to shell out compensation in the case of any legal challenge.

Prospective bidders have argued that if they are expected to give performance guarantees that oblige them to pay penalties in case they delay in developing the mines, government agencies should also be held accountable if companies suffer losses on account of procedural delays.

The finance ministry has been specific in demanding that all bidders come up with performance guarantees as telecom players do in spectrum auctions.

Officials said bidders would be asked to quote a percentage of the revenue share of each mine they would give to the government as their bids. Whoever offers a higher percentage of revenue will win the bid. The revenue will be determined by multiplying production with the average of five-year’s international prices of coal of similar calorific value.

The profit-sharing method used in bidding for gas blocks has not found much favour as companies have often been thought to inflate their costs to show lower profit.

However, to eliminate rent seeking and non-serious bidders, the government will demand the performance guarantees.

The government is also mulling relaxing rules for the end-use of coal, which would allow companies to swap coal meant for one project with another or to divert it to a different arm on payment.

At present, steel, power and cement companies are allowed to run mines, which feed dedicated plants. The companies can mine only as much that is required and not to the optimum capacity of the mines, leading to wastage of resources. Miners can, with little additional capital expenditure, increase output from a captive mine by 30-100 per cent.

Adviser selection

The government has asked Coal India’s mine planning and consultancy arm CMPDIL to appoint two separate consultants, including Crisil, to help in the process of coal block auction, according to PTI.

“CMPDIL was requested to consider appointing two separate consultants for auctioning and evaluation of bids at the earliest,” said a coal ministry note, highlighting discussions in a meeting held under coal secretary S. K. Srivastava recently. The meeting was held to review the proposed blocks to be auctioned.

It was also suggested at the meeting that since Crisil was already appointed as a consultant by the CMPDIL to suggest the method for fixing the floor price, the CIL arm may consider the possibility of engaging Crisil to assist in the auction.

 
 
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