Public and private

Keeping public sector companies out of auctions will erode the credibility of coal reform

Written by The Indian Express | Published:September 11, 2012 3:54 am

Keeping public sector companies out of auctions will erode the credibility of coal reform

The inter-ministerial group will soon de-allocate coal blocks from among the 58 identified in the CAG report. Together with the backlog from 2007,the period when no meetings of the screening committee have been held,these blocks will be put up for auction by the coal ministry. Already,however,there are noises within the government arguing for keeping the public sector companies out of the auction. The reasoning is as follows: since the coal mines assigned to public sector companies like Coal India and its subsidiaries,or say,NTPC,are public reserves,there is no reason to ask the companies to bid for the blocks.

This is a flawed argument. To succeed,and for the state to realise the best value from the mines,the auction process must ensure the largest possible participation. In the auction for telecom spectrum,the two public sector companies,BSNL and MTNL,did not have to bid,they had to match the discovered price as a valuation for their spectrum and pay the government accordingly. For coal,however,a similar process will not be possible as Coal India is not only far larger than every other entity in the sector,but it is also the price setter by virtue of its nationalisation. Its absence is likely to cripple the price discovery,unlike in telecom,which has robust private sector participation. Those who further argue that a price paid by CIL or NTPC in the auction to the government just transfers assets make an elementary mistake. These companies are corporate entities too,with a responsibility towards their shareholders. They will punish exorbitant bids,driving down the capacity of these companies to make investments in the future. Had it been otherwise,CIL scrips would have done better in the markets when private sector entities in the infrastructure space were battered this year. But it too has lost Rs 13,430 crore of its market cap since September 11,2011.

An auction involving all players will also put to rest the pernicious argument that a block mined by CIL is ipso facto better than any venture by the private sector. Taken to its logical conclusion,this line of argument means the CIL must outbid for every mine,making a further mockery of its market cap. Instead,wherever public sector entities drop out of the auction for a block,it will be clear that there are others who have a demonstrably better plan to exploit the mines. The fruitless debate over whether the 58 blocks,or those leased in the future,would be better served by staying on as public sector units,will be over.

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