CAG finds inadequacies in coal mine e-auctions

New Delhi: The Comptroller and Auditor General of India (CAG) on Tuesday pointed to “certain inadequacies” in the way the first and second coal block auctions were held last year that warranted improvements but refrained from saying bidders did anything illegal.

In a report on the e-auctions, tabled in Parliament, CAG criticized the auction process mainly on two counts. Firstly, there was under determination of upfront amounts in 15 mines by ₹ 381.8 crore due to “inaccuracies in assessing the intrinsic value of mines”. Secondly, allowing joint ventures to bid separately meant that the apex auditor “could not draw an assurance that potential level of competition was achieved”.

“Valuation of a mine has no relevance when price is discovered through an auction. Besides, the ‘deficiency’ pointed out by the CAG is non-consideration of indirect taxes, which actually does not apply to coal mined for captive use as there is no sale involved,” said a government official, requesting anonymity, adding some of the CAG’s concerns on the design of auctions have already been addressed.

The CAG, however, complemented the government for bringing a new paradigm in the allocation of natural resources within five months of Supreme Court cancelling the allocation of 204 coal blocks in September 2014. It described e-auctions as an improvement over the earlier allocation system, as it attempted to build in objectivity, transparency and fairness in natural gas allocation to private players.

E-auction of coal is designed to ensure that coal mines are given to power companies at an affordable rate as they sell electricity at regulated prices and to sectors such as steel and cement at best market price. For non-regulated sectors, technically eligible bidders who offer an initial price not less than the floor price based on the intrinsic value of the coal mine, will be allowed to enter the second stage of bidding. The highest bidder will be awarded the mine.

The two auctions held in February and March of 2015 respectively are expected to fetch over ₹ 3.44 trillion during the life of the 31 mines to producing states. Out of these, those who won the blocks have started production in 13 blocks. So far, about 13 million tonnes of coal have been mined from them.

The government’s statutory auditor suggested that since only the top five bidders or half of the top bidders will be allowed in the second phase of bidding, allowing joint ventures in that stage to make separate bids will crowd out others.

“In a scenario where standard tender document allowed participation of joint ventures and simultaneously limited the number of qualified bidders which could participate in the e-auction, Audit could not draw an assurance that the potential level of competition was achieved during the second stage bidding in 11 of these mines,” said the CAG report. In the third round of auction, which was subsequently cancelled because of lukewarm response, this clause was changed “with the objective of increasing participation”, it said.

The official quoted above said that Delhi high court had in 2015 upheld the earlier provision stating that it was neither arbitrary, irrational nor designed to favour any particular bidder. “Only 6% of the qualified bidders were JV companies and only one successful bidder is a joint venture company. This provision did not restrict competition,” he said.