News about commercial coal auctions and how the corporates are having a steal has triggered breaking headlines, and many have even started plugging motives.
So let's toss some points here:
Investors and industries have a couple hundred blocks to choose from.
A dozen coal blocks were allocated, with a single bidder for each in the fray.
23 blocks, including those northwest of Madheri, received two bids each.
Northwest of the Madheri block didn't find contenders in the earlier two trenches.
Auctions don't prohibit bidders from having commercial relationships.
Auctions were held for 93 blocks, with 106 more to go under the hammer.
India's energy sector continues to be fraught with convoluted commentaries and wild allegations, and many are finding it extremely convenient to distort and isolate facts.
It does nothing but create some mild sensations.
So let's get into some of the basics. In the face of mounting pressure from developed nations against the Indian government's efforts to ensure energy security for the world's most populous nation, the energy sector is one of the most vulnerable sectors of the Indian economy. Why?
Those who criticise ongoing commercial coal auctions are either sympathisers with those who lost coal blocks allocated by the UPA government without any competitive bids, or they undermine the interests of a developing nation, which does not give away national assets without auctioning them. Due to the complexity of the energy sector, many experts are using clickbait to trigger breaking headlines.
First of all, let's put some facts on the table. I would like to discuss the issue of the North West Madheri coal block, which was up for auction in Tranches 4 and 5, but failed to generate any interest. Ultimately, Tranche 6 auctioned this block successfully, with two bidders participating. And there are many more such interesting aspects to the bidding process, which I would like to list here.
Coal Blocks With Single Bidders
After the Supreme Court cancelled the freely allocated coal blocks in favour of what the apex court felt were the favourites of the previous regime, the present government has auctioned 93 blocks in six trenches since mid-2020. Of these, a dozen blocks attracted only a single bidder. To ensure the competitiveness of the auctions, the authorities invited bids for those blocks yet again. However, these mostly unexplored or partly explored blocks failed to excite new bidders. Hence, these blocks were given away to these single bidders without competition, as per the terms of the auction.
The premium offered by these single bidders is not known since the data is not published by the auction authorities. However, one can only imagine the premium offered by the single bidders to the government in the absence of any competition. It is also worth mentioning here that the Adani group—now in the heat for reasons good, bad, ugly, and some more—didn't get any blocks without the competition. However, many continue to attach motives to the case of the Northwest Madheri Block in isolation for some strange, ulterior motives.
Coal Blocks With Two Bidders
Now let me argue why many miss the trees for the woods and target a single block with incomplete information. And thereby implying something fishy about the Adani group bagging a coal block that attracted only two bids. Now the critics have remained silent about the fact that 22 other blocks were auctioned with the participation of only two bidders each. And at least half of them were given away with a premium in the single digits percent. There are many other instances where bidders for the same commercial coal block had commercial transactions with each other.
Now let me go deeper into the case. Many raised questions against the promoters of the other bidder, Cavill Mining Private Ltd., due to past business relations with Adanis. There can't be any auction if contenders with other business relationships are disallowed from participating in the bidding process. This goes even further. The government has not prohibited public-sector units from competing for the same coal blocks. There are multiple instances where state and central PSUs competed against each other for coal mines.
Importantly, apprehensions against any bidder don't make any sense since eligibility criteria don't limit any entity from participating in the commercial coal mining auction, irrespective of prior experience in mining or net worth, among others. This is a well-thought-out move by the government in a country that has to meet one-fourth of its coal requirements through expensive imports despite having the world's fifth-largest coal reserves. While India must encourage competition in commercial coal block auctions, it should not shy away from promoting domestic coal production due to the pressure groups dancing to the tunes of energy-guzzling developed nations.
In the past, commercial auctions conducted by the state government authorities for various minerals had allowed multiple companies from the same business house to compete in the bidding process as per prevalent terms and conditions. Again, such is not the case in the auction of the northwest Madheri block, where both bidders are unrelated to each other. Hence, there is nothing unusual about successful bidder Adani competing with only one other contender.
Coal India And Competition
This is not all.
Bidders cannot be blamed for the lukewarm response to certain blocks simply because many of the blocks auctioned are either unexplored or partially explored and are not promising assets for the investors. Being a central PSU responsible for coal mining, Coal India could acquire any block of its choice without paying any premium to the government. However, it didn't risk developing the blocks that are now being auctioned. If the world's largest coal miner (read: Coal India) didn't risk developing these blocks, can the government genuinely expect private firms to risk their capital for unproven reserves? Coal India had a free run due to its monopoly, and it enjoyed low-hanging fruits for decades. In the absence of any competition or motivated lobbying by experts, the PSU emerged as the world's largest coal producer to electrify the world's almost most populated nation. Now the Indian government has taken a bold step to allocate all the risky coal assets through competition, unlike the previous regimes, but is still facing the music from the critics. The government must remain firm on its plans to make India self-reliant in the energy sector. India's per capita electricity consumption stands at only 1250 units annually as against the global average of over 3200 units. Coal will be the primary fuel for power generation in India for a decade or two till renewable and other emerging resources don't become viable and widespread.
Auction With Alternatives
Fierce competition is missing during the ongoing auction for commercial coal mining since the coal consumers are supremely confident of securing fuel for their energy-intensive factories. Industrialists and investors have to simply follow the transparent auction process instead of chasing fixers—the lists include some veteran, celebrated cricketers—and political powers in Lutyens' Delhi to corner coal blocks. Having closely tracked the coal sector, I am pleasantly surprised with the way it is operating today. It is heartening to see that even after the auction for 93 coal blocks, the government is going to offer over 100 mines, of which 61 are partially explored and 45 are fully explored. Such ease of accessing dry fuel is truly unprecedented in India.
Unlike oil and gas, the coal mining sector has been the most complex in the Indian energy sector. This is on account of the nationalisation of coal assets, the role of trade unions and environmental activists, and, most recently, the controversial mine allocation system in the UPA era. Today, the Indian government is using a unique mechanism to auction mines. Why not stand with the government with watchful eyes but without being paranoid?
Shantanu Guha Ray is the Asia Editor of Central European News. He is author of 'Black Harvest: The India Coal Story' that will hit the stands in a few months.
The views expressed here are those of the author and do not necessarily represent the views of BQ Prime or its editorial team.
Disclaimer: AMG Media Networks Ltd., a subsidiary of Adani Enterprises Ltd., holds a 49% stake in Quintillion Business Media Ltd., the owner of BQ Prime.
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