Size of consortium bidding for coal must be restricted

Dec 03 2012, 10:52 IST
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Summary* Coal min says too many small companies make operations difficult

The coal ministry has decided that the size of a consortium bidding for a coal block must be restricted to a maximum of six firms and the majority partner of the syndicate should have a stake of at least 26 per cent which would allow it to exercise board control on the consortium.

Chairing a recent high-level inter-ministerial committee meeting to examine the bidding parameters suggested by the concerned ministries and Crisil, coal secretary SK Srivastava said that too many small companies joining hands to form a consortium would render operations difficult.

To bolster his contention he cited a recommendation of the finance ministry, which had earlier suggested that in the model concession agreements for the infrastructure sector the size of a syndicate should be restricted to six companies.

In fact, the preferred option should be to have a consortium of six firms wherein each member should hold a minimum of 20 per cent stake each while the lead member must have 26 per cent participation, an official, who attended the meeting quoted him as saying.

Other participants in the meeting, including DIPP secretary Saurabh Chandra, power secretary P Uma Shankar, Central Electricity Authority top brass and Coal India chairman S Narsing Rao are understood to have agreed to these suggestions. The meeting was unanimous on existing end-use projects (EUPs) having captive blocks should not be barred from bidding for fresh blocks since the bidders would be willing to pay the market price for the block an there is no need for rationing or restricting them.

The IMC decided that the net worth of the bidder should entail his equity part of the capex of the EUP along with the floor price of the bid as well as his financial ability to ensure development cost of the coal block.

At the behest of Srivastava, the meeting concurred that the consortium should be allowed between bidders each of whom meet the proportionate qualifying criteria on their own. This is because if a consortium is allowed to be formed by only relying on the financial strengths, then this would open the doors for financial companies which may not have exposure to end use plants. Therefore, along with having financial muscle for setting up plants the firms or syndicates should have the requisite wherewithal to engage into coal mining.

The IMC also concluded that there is no need for multi-layers stages for in the bidding process which would

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