India’s Steel Ministry seeks to relax coal block auction rules

KOLKATA (miningweekly.com) –  Stung by the lack of response to the auctioning of coking coal blocks exclusively for steel companies, India’s Steel Ministry is seeking to tweak the auction rules.

The Steel Ministry has started work in conjunction with its counterparts in Coal Ministry to ensure certain auction rules are made less stringent.

The move comes close on the heels of the Indian government last week, indefinitely deferring the auction of five coking coal blocks in eastern Indian province of Jharkhand, a government official said. He said that the five coking coal block had been reserved to be allocated to steel companies.

Although no official reason was cited for the deferment of the coal block auction, industry sources say this was done as the government realised that the auction will likely fail to get a favourable response from bidders or that the valuations are likely to be poor.

The sources say that in the government’s assessment, considering the poor financial state of most domestic steel producers, they will not be able to commit large investments necessary to secure raw material assets through competitive bidding.

However, evaluating the deferment of the auction by the Coal Ministry, the Steel Ministry has taken a stand that the stipulation that there should be a minimum of three valid bids for each coal block should be relaxed.

Given the limited number of steel companies that could participate in the auctions, the Steel Ministry acknowledges that  the number of bidders is always going to be limited.

Hence, fears of low participation and the possibility to less than the minimum three bids coming in, should not lead to deferment of the auction process, the Steel Ministry states, adding that the vigilance oversight should also be relaxed to preclude possible negative charges in case a coal block is allotted even if just two valid bids were received in course of the auction process.

The Ministry wants a coal block allocation to be allowed, even if there is just one bid.

The Coal Ministry needed to ensure that the auction was transparent and rules adhered too and this did not necessarily be linked to the number of bids, the Steel Ministry is reported to have said.

It might be noted that this was the second round of deferment since 2015 for allocation of coal blocks exclusively earmarked for steel producers. In both cases, a lack of adequate response from investors were cited as reason.