Current Affairs

Coal Auction: Things you should know

[dropcap]M[/dropcap]Media, people laughed at former CAG Gopal Rai, when he said that mines allocation without auction during UPA period has led to the loss of staggering 1.86 lakh crores. Some journalists mocked him by saying his numbers are hypothetical. But latest trends suggest that the former CAG is having the last laugh. Earlier, coal blocks were given to companies below market rates for peanuts. So, Supreme Court on Sept 2014, cancelled 204 coal block allocations done over past two decades saying that coal blocks were allotted through an “ad-hoc and casual” approach “without application of mind”. It said, “Common good and public interest suffered heavily in the unfair distribution of the national wealth – coal.”

So, the Modi government initiated transparent bidding process through E-auction, which is going on really well. Going through the latest reports, the allocations have fetched over Rs. 3,00,000,00,00,000 (did I miss any zero Kapil Sibal sir?) i.e., three lakh crore rupees. The govt has fetched more than 2 lakh crores by coal auction and the rest by the spectrum auction. The amount has come from auction of 32 blocks out of 204 blocks, so clearly former CAG’s stand is vindicated. The NDA government must be credited for bringing the transparency in the auction process.

How is it beneficial to the common man?
The latest 14th financial commission report, which talks about cooperative federalism and provides 42%(10% more than the previous) of the total taxes of the Centre to state governments, which will help in wiping out fiscal deficit from balance-sheets of Indian states. Backward States like Bihar, Jharkhand, Orissa, Madhya Pradesh, Chattisgarh, West Bengal etc will benefit from this. They can well utilize these funds for the development of the state.

The huge profit from these auctions will fill the coffers of the government, which means there will be more money for schemes, development and employment.

The coal auction will also reduce power tariffs. The government has adopted reverse bidding process to execute this. In reverse bidding process, if the ceiling price is Rs 1,000 and the bidder bids Rs 800, then the benefit of Rs 200 is directly passed on to consumers. This would mean if the power is sold at Rs 3.50, out of which is Re 1 is the cost of the coal and the same will become 80 paise because of the pass-through benefit of Rs 200. Thus, the new price of power will be Rs 3.30 per unit.
This will definitely benefit the people.

Not so good points
The profit from the coal blocks also depends on the timing of the auction, this means if global coal prices rise once the downturn is over (and domestic prices follow suit), the actual auction proceeds might even trend higher(report). One argument is that the amount Rs 2.07 lakh crore received over 30 years would have a much lower present value, depending on the discount rate adopted. Which suggests that the coal allocations would have received higher bids if it was structured differently (i.e., timegap between auctions).

If this money to the exchequer is well utilized for PM Modi’s dream plans like Swachch Bharat, Skill development and Make in India then I believe the Achche Dins are not too far.

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About the author

Aditya Kalluraya

Aditya Kalluraya

Entrepreneur. Driven by a passion for creating platforms for people to share their opinions, experiences. A student of life, learning new things by choice. Founder - Readoo, Filmypundit, and, Filmypundit.

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