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Indian Steel Manufacturers Call for Parity in Iron Ore & Coal Block Auctions

Aug 13,2019

Steel producers have asked for a level playing field in auctions of coal and iron ore blocks. Although electronic auctions of both coal and non-coal blocks are governed by the same legislation - Mines and Minerals Development & Regulation (MMDR) Act 2015 - steel producers feel there is a glaring disparity between the eligibility norms for bidders. While in case of coal blocks, the capacity of the end-use plant and quantum of coal is considered, there are no such riders for auctions of non-coal blocks, including iron ore.

 

Steelmakers have sought the PMO's intervention to establish parity between coal and non-coal block auctions.

 

Under Coal Block Allocation Rules 2017, a company would be eligible to bid for any Schedule II coal mine, or an operating coal mine, if it has incurred expenditure of at least 80 percent of the project cost of the unit, or phase of the specified end-use plant, for which the concerned company is bidding. If the end-use project is being commissioned in phases, the other phase or unit will also be eligible provided a minimum of 40 percent of the expenses have been incurred.

 

In contrast, for non-coal block auctions, the Mineral Auction Rules of 2015 mandate that particular mine, or mines, may be reserved for specific end-use. According to the model tender document, companies with installed plants are eligible for bidding. However, the document does not mention the requirement of the capacity of end-use plants.

 

"The skewed norms in Mineral Auction Rules, 2015 will lead to the concentration of ore in a few hands. Not only will these phenomena have an adverse effect on the balance iron ore, pellet and steel producers, but also lead to a manipulation of the market and pricing, thereby hurting the consumers," said an industry source.

 

Besides, pellet and steel manufacturers, who lack captive iron ore mines, will have to fall back on market sourcing, or expensive imports, to keep their operations afloat. However, such end-use plants will lose the competitive edge and contribute to the escalation of steel prices.

 

Further, under sub-rule 5 (f) of Coal Blocks Allocation Rules, 2017, the central government has the discretion to spell out the maximum number of coal blocks that can be allocated to a company, or its subsidiaries, or associate companies. On the contrary, there is no cap on the allotment of mineral blocks or the number of mineral resources. Successful bidders can take as many blocks at auctions provided they conform to the area limits listed under Section 6 (1) (b) of MMDR Act, 2015.

 

An official with a leading steel company said the anomalies in auction norms can be corrected with amendments in Mineral Auction Rules, 2015.

 

“In case of auctions of captive mineral blocks, a bidder may be considered eligible for bidding only if its 50 years requirement of mineral for the specified end-use plant is equal to, or more than, the resource of the mineral block plus resource already held by him. Moreover, the minimum capacity of mine may be pre-defined in the tender document and MDPA (Mine Development and Production Agreement) are made stringent so that a defaulting miner does not get away with a small penalty for the shortfall in production”, he said.

 

Data posted on the Mines ministry website says that 68 non-coal blocks have been put to online auctions (as on August 6)- a mix of 25 limestones, 24 iron ore, six bauxite, four gold, three graphite, three manganese, two copper and one diamond blocks. The combined valuation of the auctioned resources is pegged at Rs 2.46 trillion.