KOLKATA (miningweekly.com) - The Supreme Court-appointed Central Empowered Committee (CEC) this week recommended that some 49 iron-ore mining licences be cancelled in the Indian province of Karnataka, while also suggesting that a financial penalty be imposed on 71 companies accused of illegal mining.

The CEC further recommended the scrapping of mining licence allocations in Karnataka on a “first-come first-serve” basis, and favoured an auction mechanism for more efficient price discovery and allotment of iron-ore resources for both captive consumption and merchant sales.

“Clearly, the CEC recommendation for auctioning off iron-ore resources, though specific to Karnataka, cannot be limited to just one state but has to be made applicable nationally,” said a Mine Ministry official.

“Moreover, the CEC recommendation read along with the Supreme Court judgment on telecom licences, and the auction route would have to be adopted not only for iron-ore but all other resource, even coal blocks,” the official added.

Earlier this month, the Indian Supreme Court cancelled 122 telecom licences bundled with 2G spectrum allocation on a ‘first-come-first serve’ basis, and ruled that all natural resources be allocated through the auction route.

The interpretation of the court ruling and the current practice of allocating natural resources based on applications by investors has cast a pall of uncertainty over the government’s forthcoming first-phase allocation of 54 coal blocks through the auction route.

This would be the first time that the Coal Ministry would adopt the auction route for allocating coal blocks across the country.

Under the new system, the 54 coal blocks would be allocated to companies, in sectors other than power, through auction, where bids would be invited based on a floor price. The power sector has been exempted from the bidding process and instead power companies applying for blocks would be selected based on electricity tariffs quoted when seeking clearance for their power projects. A reserve price would, however, be applicable for these power companies.

The Power Ministry, which lobbied for the power producers to be exempted from auction, has argued that bidding for coal blocks by the latter would make coal prohibitively expensive, translating into higher tariffs to detriment of consumers. However, the very same argument as that brought by the government before the Supreme Court, in the case of telecoms licences and 2G spectrum allocation was rejected by the court, which sought auction for all natural resource allocation.

“The exemption of power companies from auction would protect their generating costs but it is still not clear how such an exemption does not fall foul of the Supreme Court order,” said an official of a power company awaiting coal block allotment, on condition of anonymity, since several resource allocation cases were pending before the courts.

“The move would spell another round of chaos similar to the one afflicting the telecoms sector. It would be very difficult to justify two modes of allocation in the case that this was legally challenged by an unsuccessful bidder,” the official said.
 

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