Coal block e-auction may turn into a flop show

Likely absence of non-serious prior allottees, attempts to inflate valuation of existing infrastructure coupled with difficult economic scenario are some of the factors that might result in poor response to the mega coal block auction slated for sometime in March, multiple industry insiders told dna.

"There are going to be lot of issues pushing the e-auction through; there could also be legal challenges as prior allottees might create hurdles. They have invested in the infrastructure and are now supposed to disclose the amount invested, which would be paid back to them. Its natural that they would inflate the figures to make sure that the new owner might have to pay through his nose to get hold of it. This would give some advantage to the existing block owners to win back their blocks and discourage players to bid for blocks which didn't belong to them," VK Arora, president of the Indian Coal Merchants' Association, and chairman of mining and construction division of Confederation of Indian Industry said.

In the first phase, around 100 blocks are being put up for re-allocation, including 42 producing and 32 soon-to-be commissioned mines.

The apparent non-cooperation of most of the prior allottees on the mining infrastructure issue, who have already invested in the infrastructure are up to some tricks to create roadblocks.

"It was requested to provide details of land and mine infrastructure. It is noted that baring a few exceptions, complete information in the desired format has not been received," the latest reminder issued by the coal ministry last week said.

The general economic slump, particularly, sharp fall in imported coal prices, especially in some specific quality grades, have started matching domestic prices and might turn away serious players.

"The auction has come at such a time when industry is not in a good shape; steel industry is in one of its worst conditions; most of the sponge iron plants are lying closed while many power companies are loosing badly. These are the people who are going to be bidding for the coal blocks. If they don't have the good cash flow available to them, it would be difficult for them to bid aggressively," said Arora.

Arora, on behalf of CII, has also communicated to the ministry some of the industry's apprehensions over the draft auction guidelines that were issued last week.

But it is the expected no-show of the non-serious players that could be a major dampener, according to an official of a leading consultancy house which is advising corporate on the auction strategy.

"Recent reports of siphoning of money through overvalued coal imports and earlier similar reports involving power plant equipment imports indicate that there is a larger scam of some power producers benefiting not by generating power but money taken out of country. Such players are unlikely to participate and we would see them divesting their stakes in the projects now that they have already made money on it without actually producing any power," the consultant, who refused to be identified, said.

Exit of existing investors from power projects is a real challenge, says Ashok Khurana, director general of Association of Power Producers.

"In the recent past, we have seen acquisitions pick up in the power sector, largely due to some developers trying to de-leverage their balance sheets and also due to newer developers looking for an exit due to the various implementation challenges which have beset the sector of late," said Khurana.

"While the government has initiated measures to try and turn around the sector, such as streamlining the process of environment clearances, ensuring speedy completion of the coal block auction process to ease difficulties caused by the Supreme Court judgment, consideration of gas pooling and financial package to help the stranded gas based assets start generating power, etc, it will take some time till these measures get grounded and the projects regain viability. Until that happens, in the short to medium term, we may see some more consolidation happening in the sector." added Khurana.