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Soumik Dey
Soumik Dey


Mining money

COAL AUCTION Imaging: Job P.K.

The coal auction has touched 02 lakh crore. And, the telecom auction is expected to make another bundle

The prospect of a Rs3 lakh crore windfall has cheered up the Union government. This comes at a time when Finance Minister Arun Jaitley was staring at a possible Rs6 lakh crore deficit in this year's Union budget. Jaitley is a happy man now. So are Piyush Goyal, the Union coal minister, and Ravi Shankar Prasad, Union minister for communication and IT. The coal-producing states are grinning wide, as they will receive a large cheque by way of mining royalties.

On the last day of the coal auction, Goyal had met Prime Minister Narendra Modi to update him on the earnings. It would be an understatement to say that Modi was pleased.

The government had hoped to get Rs82,000 crore from the telecom spectrum auction and another Rs38,000 crore from the coal auction. But, the earnings of Rs2 lakh crore from coal alone surprised even a seasoned investment banker like Goyal. The ministry had put up 33 coal blocks for auction.

“We have exceeded the loss estimates given by the CAG report in this round of coal block auction,” Goyal told the media, referring to the Comptroller and Auditor General's controversial report of 2012. Coal Secretary Anil Swarup said: “The amount is certainly beyond our expectation, though we did not have any specific figure in mind.”

In June 2012, then CAG Vinod Rai had told THE WEEK that this might happen: “The loss estimated in our report [Rs1.86 lakh crore] is highly underestimated, compared to the possible revenue foregone to the government by avoiding the auction route for coal block allocation to industries.”

While the ministries are in an upbeat mood, they are also gearing up to combat the controversies surfacing in the wake of the auction. After the auction was over, the coal ministry was dissatisfied with the pricing in seven blocks and had put them up for review by the inter-ministry committee (IMC). The IMC, chaired by Additional Coal Secretary A.K. Bhalla, cleared three of the seven bids under review and recommended fresh bidding on the remaining four blocks.

Of the four, three had been won by Jindal Steel and Power Ltd and one by Balco. “If the government cancels a perfectly transparent and democratic auction then we will take the matter to the courts. We just hope that the government has the wisdom to not do so,” said a top executive of JSPL.

JSPL―owned by Congress leader and former MP Naveen Jindal―and Balco have approached the Delhi High Court. Before April 4, the coal ministry will have to explain to the court why it cancelled the four winning bids. The four mines―Tara, and Gare Palma IV-1, 2 and 3, all in Chhattisgarh― have deep reserves.

The IMC's decision has ruffled a few feathers. “We welcome the government’s decision to auction coal blocks,” said Sanak Mishra, secretary general, Indian Steel Association. “But any lawsuit at this point can raise questions about the entire process. Such actions will dampen investors’ sentiments in the country and are neither in the interest of industry nor consumers.”

Mishra was also reacting to the unrest among bidders from the non-power sector, especially from the steel and cement industry. The non-power bidders say that the power sector was given priority.

“What is the benefit of conducting an auction, if only power companies are allowed to keep captive coal blocks,” asked Sunny Gaur, MD, Jaypee Cements. “Industries like cement and steel provide 15 times more employment and income generation to people as compared to power. We hope the government remains mindful about that aspect during future auctions for coal blocks.” Jaypee Cements had put up a winning bid in the auction.

The rumours about low bids is not true, said Rajeev Bhadauria, director, JSPL. “Government set the base price as Rs700 for the Gare Palma mines,” he said. “As this was reverse bidding, all bidders were to bid lower than the base price. In our business sense, it was prudent to bid (-) Rs126, which means we will pay the government Rs126 for every tonne of coal extracted.

“This will bring up the cost of power production for us to Rs880 per MW. Going any further than this would have been unviable for our business. So, the assumption that we bid lowest is not correct. We have only given prudent and informed bids.”

Accusations are rife that some companies had formed cartels, which may have led to low bids in mineral-rich states like Chhattisgarh and Odisha. The coal ministry has denied these charges. Bids had reached as low as (-) Rs700 to a (-) Rs2,000 bid by Adani Power. TV mogul Subhash Chandra’s Zee Group was also a bidder. Zee had approached the Supreme Court over alleged irregularities in the auction; the court refused the group’s claim.

Swarup said, “In one of the blocks, the forward auction bid amount was only Rs108 and, suddenly, there was this debate that this is very low. But, let me give you a number here. The value that is coming out of the e-auction is Rs1,679 crore. Value that is coming from royalty is Rs1,523 crore. But, the real value is coming out of the tariff concession that will happen and that is Rs11,469 crore. So, the overall value that gets determined in that particular block is Rs14,671 crore. It's a huge amount.” He also said that “if someone fell outside the bidding pattern, that needed to be examined”.

THE TELECOM SPECTRUM auction is also taking place simultaneously and the government has managed to net Rs1.08 lakh crore, which had surpassed the 2010 spectrum auction numbers. About 89 per cent of the spectrum has been sold on provisional basis.

“A big fight is going on between Idea, Reliance Jio, Vodafone India and Airtel over CDMA 800MHz airwaves that can support 4G in future and spectrum in the 1800MHz band which is 4G-ready,” said a telecom department official.

The aggressive bidding is also raising financial worries among telecom players. On March 31, bid winners will need to make preliminary payment of Rs27,000 crore to the government.

“Banks are not ready to lend despite strong balance sheets of telecom companies,” said Himanshu Kapania, CEO, Idea Cellular. “They are citing their internal difficulties as the reason for the fund shortage. The only solution is deploying our cash reserves, which will eventually eat into the budget meant for service roll out after the auction.”

The auction might not affect telecom tariffs. “Already the ARPU (average revenue per user) in India is among the lowest in the world,” said Arvind Bali, director and CEO, Videocon Telecom. “It is demand in the 4G services now that will determine to what extent the rates for data services will prevail.”

His views are seconded by other experts in the telecom sector. They say companies are shelling out top dollar in the current auction as the expiry of licences in the 800MHz and 900MHz bandwaves is a question of survival for many of them. “It is going to be very difficult for companies to make any dramatic changes in tariffs in such a competitive market,” said Mahesh Uppal, director of Com First, a telecom consultancy firm.

An air of uncertainty also surrounds the telecom auction as the government said that it cannot declare the name of the winners before the final hearing on pending cases over the spectrum auction.

Operators like Bharti Airtel, Vodafone India, Idea Cellular and Reliance Communications had raised multiple issues about the auction in High Courts. The Supreme Court had transferred all these cases to itself as the telecom department had sought early quashing of these objections.

The telecom bidding will most likely continue till the end of March. But, that is no end. In April, another 43 coal blocks will go under the hammer.

Coal goal
Total extractable resources of blocks auctioned as Schedule 2 and Schedule 3 coal mines: 1,697.49 million tonnes.
Total extractable resources of blocks held back by government, after auction in Schedule 2 and Schedule 3 coal mines: 473.77 million tonnes.
Spectrum scoop
Bidding invitation for 18 circles across 4 bands (800MHz, 900MHz, 1,800MHz & 2,100Mhz)

Auction highlights:
Highest bid was for Delhi, followed by other metros.
Bidding has shifted to 800Mhz and 1,800Mhz bands that can support 2G/3G networks and can be upgraded to 4G.
Basic telecom spectrums were most sought-after. 4G spectrum drew less response in the auction for circles in Andhra Pradesh, Mumbai and Delhi.

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