First e-auction flops as high fee, rising mining costs scare bidders | india | Hindustan Times
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First e-auction flops as high fee, rising mining costs scare bidders

india Updated: Feb 16, 2016 01:52 IST
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Earlier, since the 1960s, mines were allocated on a first-come-first-serve basis, but with frequent allegations of corruption and arbitrariness in the process, as noted by the MB Shah panel on illegal mining in the country. (HT File Photo)

The Union government’s plan to take auction of mines online to bring transparency to the allocation process has fallen flat as high cost and stringent rules have kept bidders away.

Online auction of mines was an idea forced down the throats of states in May 2015 by the Centre to check corruption in the allocation of leases. However, more than six months later, states such as Rajasthan, Madhya Pradesh and Gujarat are struggling to allocate mines via the electronic mode due to the low number of bidders.

Earlier, since the 1960s, mines were allocated on a first-come-first-serve basis, but with frequent allegations of corruption and arbitrariness in the process, as noted by the MB Shah panel on illegal mining in the country. The idea behind the Mineral (Auction) Rules 2015 was to check corruption while also improving revenue for the states.

That plan, however, has backfired. In Rajasthan, the e-auction was scheduled for January but was deferred due to an insufficient number of applicants. Of the 29 bid documents sold, only one was found eligible for bidding and the auction was called off as minimum three bidders are required, a state government official said.

The official blamed the new norms of the Central government for the poor interest among bidders. The new norms mandate that land owners have a 26% stake in mine revenue — an unfeasible proposition according to miners.

High initial deposit required to be eligible to bid is a major deterrence as well. Miners contend that business would no longer be economically viable, with the increased premium and higher royalty, as prescribed by the Central government.

“This extra financial burden would not let us compete with pre-existing miners,” said a miner in Rajasthan.

A government official agreed with the apprehensions of the miners. “Transparency is good but in its garb, business has stopped,” said the official, adding that the bid premium for even a small mine was Rs 3-4 crore.

Rajkumar Rinwa, state minister of mines, said they will seek revision of the rules after consulting the mine associations. “A committee comprising representatives of mine associations and state officials is being constituted to prepare recommendations for the Centre,” he said.

“The policymakers should understand that 60% of mining projects utterly fail or close down in no time due to the inability of the lessee to overcome obstacles, 30% manage to make some profits and survive, and 5-10% hit the jackpot. To design any policy based on the glamorous 10% would be self-defeating,” said Akshaydeep Mathur, secretary general, Federation of Mining Associations of Rajasthan.

The situation in Madhya Pradesh is no better. E-auctioning was first introduced here for sand, but miners were found to be not showing up to take the letters of intent issued by the government after bidding. It later emerged that big miners were trying to block the auction by first making exorbitant bids and then not taking the letters of intent, officials said.

“Woh jaan bhujkar bid bhigad rahe they (they were deliberately failing the bidding),” said a senior official of the mineral resources department, requesting anonymity.

In the first round of online auctioning of 260 sand mines conducted in July-August last year, 91 mines were sanctioned for which only 51 bidders came forward after the letters of intent were issued.

“When we analysed the data, we realised that many of them already had sand mines allotted to them in a particular area or were illegally mining in the area. They didn’t want the neighbouring sand mines to be allotted to anyone. So they used these tactics,” the official said.

VK Austin, director, geology and mining (mineral resources department), said that in subsequent rounds of online auctions, they decided to increase the earnest money deposit that bidders have to pay for participation in the bidding process from 10% to 25% to reduce cases of fake bids.

JP Srivastava, under-secretary in the MP State Mining Corporation, told HT that as the online mining auction was being held for the first time, there were adjustment problems on the part of the bidders.

In Gujarat, the tender process for a `500-crore mining lease involving five new limestone blocks in Kutch proved to be a flop show as well, as no cement companies, which had earlier been demanding that these mines be opened for the last two decades, came forward for the online auction.

The new rules, including the requirement that 30% of royalty be submitted as deposit in advance, are to be blamed, officials said.

(With inputs from Gujarat)

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