Date | Jul 27, 2016:

The governments’ auditor, the Comptroller and Auditor General, has raised procedural issues in allocation of coal mines to companies by the Narendra Modi government. The audit body pointed out flaws in the first round of coal block and mining e-auctions conducted by the current government.

Concerns of Lower Revenue

The CAG expressed concerns in the criteria for bidder selection in its audit report on e-auction of coal mines. The auditor observed that a number of Qualified Bidders (QBs) in the e-auction stage were either from the same company, or from the parent, subsidiary companies, or joint ventures of the company. The bids, the auditor pointed out, were not competitive.

" The audit could not draw an assurance that the potential level of competition was achieved during the Stage II bidding of these 11 coal mines auctioned in the first two tranches."
CAG Report on coal auction

CAG observes that bids from different companies with the same owners may have resulted in a lower revenue promise to the state and Central governments.

The CAG report also states that a large number of bidding companies, that participated in 11 successfully awarded coal blocks, where largely joint venture companies. The report highlights that in five out of 11 blocks, effective bidding was among two to three bidders only. An example that fortifies the CAG’s concern is the Kathautia coal block in Jharkhand. The block had five qualified bidders but 222 of the 224 bids were placed by only two companies.

Lower Upfront Amount

Under the coal block e-auction rules, companies were free to bid above a floor price for the right to utilise coal. The auction for coal mines was segregated into two methodologies based on the end use of coal.

Bidders participated in a forward auction to gain mines for unregulated (steel, aluminum, cement etc) sectors.

The competition for the regulated (power) sector was linked to the reduction in power tariffs that companies can assure to consumers. Companies were mandated to participate in an initial reverse auction to reduce power tariffs and then move into a forward auction on the promised royalty to state governments.

The CAG report notes that there was under determination of upfront amounts in 15 coal mines by Rs 381.83 crore. This was 41 percent of the total upfront amount of Rs 932.44 crore received by the government.

The auditor noted that this calculation is based on analysis of issues pertaining to deficiencies in consideration of grade of coal, mine closure costs, lower rates of crushing charges, cost of land and cost of manpower across the auction process.

The report also points that there was an incomplete treatment of indirect taxes and levies in valuations of all the coal blocks. CAG notes that in six non-regulated sector mines, floor prices were under determined by amounts ranging between Rs 4.70 -1264.44 per tonne.

In all the nine power sector regulated coal mines, the price of coal used for determining the cost of power was under determined by amounts ranging between Rs 32.2 - 142.57 per tonne, CAG observed.

(Source: http://www.bloombergquint.com/)

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