Coal mines auction, a better system

The proceeds from the first round of auction of coal mines by the government has vindicated the criticism by the Comptroller and Auditor-General  (CAG) of the earlier method of allotment of coal blocks. It has also proved that the estimates of loss to the exchequer resulting from the faulty process are correct. Former CAG Vinod Rai had, in a 2012 report, calculated that there was a revenue loss of Rs 1,86,000 crore. The present auctions follow the cancellation by the Supreme Court of almost all coal mining licences awarded by governments since early 1990s, after the issue reached it through a public interest litigation (PIL). Auctions are a transparent and better system of allotment of natural resources. In the earlier system, the allocations were made by a screening committee set up by the government. Arbitrary and discretionary allocations based on the political connections and financial clout of aspiring companies and individuals were the norm, rather than a rational and economic logic and the genuine needs of companies. Finally, there is now a well laid down procedure for coal mines allotment.

The first round of auctions which covered 18 mines  in six states, where the mines are located, will yield for them over Rs 1 lakh crore in the next 30 years on the basis of the auction amount and royalty. There were apprehensions about the likely response of the bidders to the new system but it is now clear that they are enthusiastic about it. For companies that need an important resource like coal, the best option is securing it through a clean and legal procedure. Sectors like power, steel and cement will be assured of reliable long-term supply of coal at predicable cost. These are important sectors of the economy, and that enhances the importance of the new system.

The auction saw very competitive and robust bidding by companies which were
ready to pay high prices to ensure fuel security. There is a view that in some cases, when the companies tried to outbid each other, the prices may have gone so high that they may have to cut other expenses to keep their businesses viable. The companies will have operational expenses also, over and above the bid amount. It may not always be possible to pass on the additional cost to the consumers. This has given rise to fears that they may neglect issues relating to environment and workers’ safety when they start operating the mines. This will have to be monitored in the time to come. It may also help companies to become more efficient and reduce wasteful expenditure.