Govt has made sure auction’s only way

The Supreme Court (SC) on Thursday offered the government much needed relief by distancing itself from legislature and executive decisions and ruling that while allocation of spectrum has to be done through auction, it is not mandatory that all natural resource allocations be made through this route.

Yet, if experts are to be believed, the process of institutionalising auctions for all future allocation of natural resources has already started, then be it for coal or other minerals.

“The government has actually moved ahead with the auction process in terms of minerals and that is the only way ahead now. It cannot go back,” said Dilip K Jena, head, mining vertical at consultancy PricewaterhouseCoopers (PwC).

He pointed out that the Act for allocation of coal assets was amended in 2011 through the Amendment of Minerals and Mining (Development and Regulation) 1957 Bill, commonly called as the MMDR Bill, under which any coal asset in the country has to be only auctioned.

Similarly, for non-coal minerals, the government has mooted a Bill that primarily favours auctioning of the resources unless there are issues related to adding value or bringing in technology where bidding companies are not capable enough of doing so.

The government has long been in the eye of a storm over its policies for allocation of spectrum for telecom players and coal blocks for power, steel and cement companies.

“While the SC verdict reduces the pressure on the government in terms of its past policies and justifying earlier decisions, going forward, coal block auction cannot be avoided,” said a director from a leading domestic rating house.

Hemant Joshi, partner, Deloitte Haskins and Sells, said the apex court’s verdict on auction of natural resources is likely to reduce uncertainty in sectors like mining, infrastructure and power, which in turn impact commodity, manufacturing and services sectors.

But corporates are not impressed as they feel auctioning means inflating prices of natural resources.
Sandeep Jajodia, managing director, Monnet Ispat and Energy pointed out that natural resources are rarely auctioned, around the world. Mining is treated as a separate business activity and nowhere are mines linked to captive use, forget auctioning, he said.

“Mining is a business activity that provides employment to millions and also enriches state coffers in the form of royalty and various taxes,” said Jajodia.

The apex court said, however, that the government cannot escape with flawed policies and will have to take into picture the benefit of the common public at large.

The government will also have to take a view on a case-to-case basis, the judges said, drawing an example from the amended MMDR Bill, where in coal blocks had to be auctioned in the country except an exclusion in case of power sector where the price of the end product, electricity, is regulated. If power producers pay a high price for coal blocks, they will not be able to supply power at the rates stipulated by the government.

In fact, one of the judges during the explanation said such exclusion can be held valid even “in a situation where the material resource is being granted free of cost” if it is intended to best serve the “common good.”

But the auction process can be followed for a steel or aluminum producer, because steel companies are free to price their products the way they like.

Similarly, government land cannot be auctioned at the highest price, if the intention is to provide affordable housing.