CAG points out shortcomings in the coal block e-auctions

27 Jul 2016 | By Ramya
Modi Government's coal block e-auction

The Comptroller and Auditor General of India submitted its report on the coal e-auctions by the Modi-led Government, which was tabled in the Parliament on Tuesday.

The report pointed out shortcomings in the first two coal block e-auctions held during the last year that necessitated improvements.

However, the CAG said the bidders did nothing illegal and also praised the Government for the e-auctions.

In context: Modi Government's coal block e-auction

Supreme Court cancels over 200 coal block allocations

In Sep'14, the Supreme had canceled the allocation of over 200 coal blocks. The allocation was held "illegal and arbitrary" by the apex court. However, the Centre was prepared to face the coal block allocations' cancellation.

e-AuctionsCentre allocates coal blocks through e-auction

In Dec'14, the Centre announced that coal blocks would be allocated through electronic auctions, which were expected to fetch over Rs.3.44 trillion; a web portal was launched.

The first phase of the e-auctions was held on 14th Feb'15 while the second phase on 4th Mar'15.

In the first two rounds, 29 coal blocks were auctioned for captive use by steel, power and cement industries.

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27 Jul 2016CAG points out shortcomings in the coal block e-auctions

CAG criticizes the e-auction process

e-Auction ProcessCAG criticizes the e-auction process

The CAG criticized the coal blocks e-auction process primarily for two reasons.

Firstly, there was an undervaluation of payments made in advance by successful bidders to the Government by nearly Rs.382 crores in 15 mines because of "inaccuracies in assessing the intrinsic value of mines."

Secondly, as joint ventures were allowed to bid separately, CAG couldn't assure that the potential competition level was achieved.

CAG's concerns on the design of auctions

A government official stated: "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 does not apply to coal mined for captive use as there is no sale involved."

Joint venturesJoint ventures' participation should be allowed at second stage

CAG suggested that as only half the top bidders/top five would be permitted in the bidding's second phase, joint ventures should be allowed at that stage to make separate bids and crowd out others.

Allowing joint ventures simultaneously with others will limit the number of qualified bidders in the auction.

The potential competition level wasn't achieved in the second stage bidding of 11 mines.

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Third round of auction of 11 mines canceled

The CAG felt that as potential level of competition wasn't achieved in the second round bidding of 11 mines, "the third round of auction, which was subsequently canceled because of lukewarm response, this clause was changed "with the objective of increasing participation."

AppreciationNew paradigm in the allocation of natural resources

The CAG's report, however, wasn't all criticism; it also praised the e-auctions.

The CAG complemented the Modi-led Government for conducting a new paradigm in allocating natural resources within five months of Supreme Court's ruling to cancel the allotment of 204 coal blocks in Sep'14.

The e-auctions were described as an improvement considering the previous allocation system for allocating natural resources to private players.

An improvement over the earlier system

Praising the Modi-led Government, the CAG described the e-auction as: "An improvement over the earlier system, which attempted to incorporate the principles of objectivity, transparency, and fairness in allocation of natural resources to private sector companies."