Coal Auctions with a pinch of reform

In today's Finshots, we talk about the first coal auction since the reforms.

The Story

We’ve been doing coal auctions for a while now. But things were a bit different until last year. For instance, mining licences were only offered to companies that used the coal themselves. Meaning you had to dig the coal and consume it in-house. Say, a steel plant that needs a lot of power.

In effect, mining for commercial purposes was all but restricted and you needed to have prior experience to bid for coal mining units.

But then the government decided to switch things up. They introduced a new set of reforms and set aside these restrictions. Any company registered in India can now try and produce coal. Also, they can use it any which way they like. So this time the auctions are expected to be a bit different. In fact, the e-auctions are in full swing as we speak.

However, this isn’t the first auction. We actually had a technical round back in September. Prospective bidders were asked to furnish details supporting their application (including meeting the eligibility criteria) and they were told to make an initial offer to the nominated authority. A Joint Secretary level official from the Coal Ministry then reviewed the applications and the ones that made the cut were allowed to bid for coal mining units in the final round.

And it’s this final round that’s transpiring right now. However, it's not really been smooth sailing so far.

For starters, we are in the midst of a pandemic. And considering most companies aren’t in the best financial shape right now, it's possible some of them are simply staying put.

Second, the government intended to sell a lot of mines. But not all of them will be going to auction because — clearance issues. Granted, some mines already have clearances issued to them. But on other occasions, you might still have to navigate the complex legal and political challenges surrounding coal mining. Think permits, land disputes, and other regulatory restrictions.

For instance, when the government began accepting technical bids back in September, seven mines had environment clearance, six had forest clearance; land acquisition problems had been sorted in about twelve mines and five mines were ready for production. However, there were a total of 41 mines the government intended to sell and around 15 mines did not even attract a single technical bid. Possibly because of the challenges involved in moving to production. But that’s not all. Four additional mines just received 1 bid each and so these couldn’t be put up for the final auction either. Meaning we are now left with 22 mines.

And that’s not all.

According to an article in the Scroll, participants bidding for these mines may not be the crème de la crème of the coal mining industry.

As the story notes —

The coal minister had claimed earlier in the year that commercial coal mining would “transform Indian mining sector” by bringing in foreign investment and global expertise. “Such mines would be more efficient if they are run by expert miners,” he said in an interview. But most firms participating in the auctions lack any mining experience. On the list of the bidders are several trading companies, a construction firm, a pharmaceutical manufacturer, even a refrigerant gas filler. As many as six bidders are new companies that were incorporated in the past year, lawyer and activist Sudiep Shrivastava pointed out in an application filed as part of a petition in the Supreme Court, which is yet to be admitted and heard.

However, there is one company that seems to have defied all odds by bidding for a whopping 12 mines this time around—Adani!!!

Anyway, the auctions will end on November 9th. And despite all the problems we’ve had to deal with getting to this point, we hope the coal blocks sell for a pretty price.

Until then…

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