Steel Ministry opposes coal block allocations through upfront payment, profit sharing

The Steel Ministry has opposed allocation of coal blocks in the proposed competitive bidding process either through the Upfront Payment mode (UPF) or the Profit Sharing Scheme (PSS) routes. Arguing against such mechanisms, the ministry contended that while the government could incur financial losses, it might also have to forfeit its sovereign rights over these blocks.

Responding to the suggestions of the high-level committee on various issues on competitive bidding on the UPF, a top steel ministry official said that since accuracy on the quantum of reserves in the allocated coal blocks was highly questionable, there could be instances when at a later date if the actual reserves of the blocks were found to be higher, it could cause financial losses to the government exchequer.
“Moreover, granting coal blocks after UPF or lump sum payment by the bidder may amount to government renunciating its sovereign rights over the coal blocks for future, which may not be desirable,” the official said.

The Steel Ministry has opposed allocation of coal blocks in the proposed competitive bidding process either through the Upfront Payment mode (UPF) or the Profit Sharing Scheme (PSS) routes. Arguing against such mechanisms, the ministry contended that while the government could incur financial losses, it might also have to forfeit its sovereign rights over these blocks.

Responding to the suggestions of the high-level committee on various issues on competitive bidding on the UPF, a top steel ministry official told media that since accuracy on the quantum of reserves in the allocated coal blocks was highly questionable, there could be instances when at a later date if the actual reserves of the blocks were found to be higher, it could cause financial losses to the government exchequer. “Moreover, granting coal blocks after UPF or lump sum payment by the bidder may amount to government renunciating its sovereign rights over the coal blocks for future, which may not be desirable,” the official said.

With a view to ensuring more transparency in the bidding for coal blocks, the government proposed competitive bidding as a selection process in lieu of the present Screening Committee route for allocation of captive mining blocks. Accordingly, the Mines and Minerals (Development & Regulation) Amendment Bill, 2008 introduced in the Rajya Sabha which was referred to a Standing Committee for detailed examination.

It made certain recommendations based on which, the Action Taken Note was presented as a note to the union cabinet, which approved it on January 28 this year. The Mines Ministry then moved the motion on February 18 last for passage of the Bill in the Budget Session of Parliament. The system of competitive bidding shall be adopted only for the blocks to be allocated to private companies for captive use.
The government has argued that impact on production cost of coal for switching over to the new system would be marginal as bidding would be driven by rational market behaviour.

With coal demand rising, number of applicants from public and private sector too went up, making the existing system of allocation difficult and vulnerable to criticism on transparency and objectivity fronts. In some cases there were more than 100 applicants for the same coal blocks.

Coal Minister Sriprakash Jaiswal has favoured transferring entire resources raised through this bidding to the concerned states, where the blocks are allocated. His ministry has targeted 104 MT production by 2011-12. And to achieve this, it required a growth rate of around 35-40 per cent in captive block segment alone, a coal ministry official said.