KOLKATA (miningweekly.com) - The Indian government faces fire as it re-examines and takes a decision on the winning bids for nine coal blocks put up for auction.

According to Coal Ministry officials, the options under consideration included putting the nine coal blocks up for auctions again or handing them over to government-owned and managed, Coal India Limited (CIL).

While the second option would be a bonanza for the world’s largest coal producer, CIL, both options threatened to uncover legal issues, including refunding of bid amounts deposited by successful investors and the possibility of legal challenge to the cancellation of the outcome of the auction, apart from being a blow to investors’ confidence, officials said.

In a statement on Tuesday, Coal Secretary Anil Swarup said: “the government is examining ‘outlier’ bids for the 33 coal mines auctioned so far”.

“The government is not even looking at somebody doing wrong. It is looking at whether the price that was quoted was good enough for the government or not and whether it could have got a better price,” Swarup said.

The winning bids for the nine coal blocks were the highest in their respective auctions but were considered low compared with what government was able to fetch for other mines.

However, a large section of industry and legal experts said that if the government claimed that the auction process was transparent and all rules were adhered to, there could be no case to cancel winning bids just because the bid amounts did not match government expectations.

Simultaneously, it was pointed out that comparing bid amounts for different coal mines was not justifiable as no two mines had identical parameters in terms of geological reserves, recoverable reserves, grade of mineable coal or mining operations.

The Federation of Indian Chamber of Commerce and Industry (FICCI) in a statement said: "While we have full confidence in the government for having ensured a diligent and transparent bidding process via electronic platform, any instance of reversing the process of withholding an award of acreage will adversely impact the overall business sentiment.”

“Investors have participated in the bidding process in good faith and any instance to revisit the bidding document would create a needless trust deficit between industry, government and society,” the FICCI said.

The final decision of the government, expected over the weekend, would decide the fate of the winners of the coal blocks, which included aluminium major, Hindalco Limited, Jindal Steel and Power Limited (JSPL), Jaypee Cement, and steel product manufacturer Usha Martin.

Of the nine blocks up for re-examination, four where operational mines while five others were categorized as `near operational’.

JSPL won the Tara coal block with a bid of Rs 126 ($2) per tonne of coal, while Usha Martin secured the Brinda Sasai with a bid of Rs 1 804 ($28.70) per tonne.

Hindalco Industries Limited won the Dumri coal block with a bid of Rs 2 127 ($34) per tonne and the Mandla South block was won by Jaypee Cement with a bid of Rs 1 852 ($30) per tonne.

Ministry officials said that the government was fully aware of the downsides of cancelling or withdrawing the blocks from winning bidders, such as its impact on investor confidence, but that at the same time, the government was willing to err on the side of caution to avoid the pitfalls previous governments had fallen into when allocating natural resources.

The previous Indian government had been embroiled in corruption charges over the allocation of coal blocks, culminating in the Supreme Court cancelling leases for 204 coal blocks allocated since 1993.

A special court last week summoned former Prime Minister Manmohan Singh, former Coal Secretary P C Parekh and industrialist Kumar Mangalam Birla to appear before it to face accusation for their alleged role in illegalities in coal block allocation.

Officials said that given such an environment and the spectre of past irregularities yet to run its course, the government would have little option but to play it safe, including cancelling the auction.