The Ministry of Steel has told the Ministry of Coal that it should proceed with auction of a coal mine even if the number of bidders are less than three, even though the latter is apprehensive of cartelisation.
“In case of first round of bidding, if less than three bids are received, re-tendering should be done. If less than three bids are received in case of second round also, the bid time should be extended by 15 days to invite more players and previous bids should not be opened. If no further bids are received, then the previous bids received in round two should be considered,” the steel ministry stated in a letter to coal ministry on August 28.
So far, five tranches of coal auction have been conducted by the coal ministry. However, a recent coal ministry proposal to committee of secretaries (COS) admitted: “After significant success of Tranche 1 and 2 of coal mines auction, the interest of the bidders in Tranche 3, 4 and 5 have been dismal so much so that Tranche 4 and 5 had to be cancelled owing to insufficient number of bidders.”
The first four tranches of coal auction were for the power sector and ‘non-regulated’ sector — which includes companies that produce cement, iron and steel, or captive power. The fifth tranche of auction was exclusively for the iron and steel sector.
The steel ministry added in its letter: “This (proceeding with coal auction even when there are less than three bidders) will save time lost in re-tendering and speed up the bidding process. The same process has been followed and has been successful in PMGSY (Pradhan Mantri Gram Sadak Yojana) in Madhya Pradesh.”
The High Power Expert Committee (HPEC), formed to revamp the coal auction system, suggested something similar in July. It stated that if at least three valid bidders do not participate in the first auction process, two bidders should be considered sufficient in the second attempt. If that also fails, for the third and subsequent attempts, a single firm should be allowed to bid, according to HPEC.
Fearing the possibility of cartelisation, the coal ministry stated in its proposal to COS that at least two bidders was a must because if there was only a single bidder, “there would be no bidding” as it amounts to selecting the sole bidder. In case of only one bidder on the third attempt, it suggested: “The block may be considered for allotment to a Central/state PSU or mandatory allotment to Coal India Ltd”.
Following directions by Prime Minister at a meeting last November, the HPEC was formed under the chairmanship of former Central Vigilance Commissioner Pratyush Sinha to “examine efficacy and challenges in the current bidding system and suggest changes for conducting auction of coal mines in future”.
The steel ministry also suggested that the coal ministry “expedite the process of coal block auctions” and “create a separate auction window for sponge iron companies”.
It stated that Coal Block Auction Rules 2017 should be modified so that “integrated steel producers” and “sponge iron producers” are specified as two separate end uses.
Once this modification is done, coal mine can be auctioned for sponge iron producers separately. The steel ministry explained the reason for this suggestion: “Sponge iron producers had to compete with other producers from the cement and aluminium sector which had higher financial might to bid for these captive coal blocks. Only 7 coal blocks were won by the sponge iron sector.”