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| E-auction: Long on transparency, short on effect |
| Sudheer Pal Singh & Mansi Taneja / New Delhi Aug 11, 2010, 01:41 IST |
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The government’s strategy of reforming key infrastructure sectors by introducing e-auction schemes has given mixed results. While the mechanism of auctioning commodities like coal and electricity and telecom spectrum at electronic platforms has brought in transparency in their allocation, experts believe that the strategy cannot fructify until the prevailing shortfall in their availability is met.
COAL
Over four years after it was introduced in the coal sector, views differ on whether the mechanism of e-allocation of the commodity is serving its purpose.
The government’s plan to bring about a gradual increase in the amount of coal sold through e-auction over the years has not materialised. Also, the exceptionally high prices of coal being realised at the exchange have dissuaded the buyers.
The total allocation of coal by state-run Coal India Ltd (CIL) — which supplies bulk of the dry fuel for e-auction — through the electronic exchange has remained between 8 and 12 per cent of its overall production since the beginning. This is in sharp contrast to the Planning Commission’s projection of the total offtake of coal through e-auction reaching 20 per cent by 2007.
“The production is not keeping pace with the demand of coal. The shortfall in supply has led to high prices at the exchange,” said a senior analyst from a consultancy firm.
The higher price has pushed many prospective buyers away. Lack of availability of coal and rising demand have pushed up the price of coal offered by CIL through e-auction to Rs 1,747 per tonne, around 67 per cent higher than the notified price.
However, some experts say e-auction has increased transparency in the allocation process. “Another idea behind selling coal through e-auction was to eliminate the mafia which used to dominate the market earlier, as an electronic system is less likely to be tampered with. In this sense, the scheme has served its purpose,” said a senior official close to the development.
TELECOM
In other infrastructure sectors like telecom and power, too, the scheme has received flak.
The auctioning of telecom spectrum earlier this year was severely criticised by major service providers such as Bharti Airtel and Idea Cellular.
Bharti had said, “The auction format and the severe spectrum shortage along with ensuing policy uncertainty drove the prices beyond reasonable levels. As a result, we could not achieve our objective of pan-Indian 3G footprints.”
One reason for the poor show of the spectrum auction was high price, according to experts. “The price was expensive, that is why operators decided to bid for selective circles where they have a foothold rather than go pan-India. Of course, the bids would lead to high interest and amortisation costs which will have an impact on their bottom lines,” a Mumbai-based analyst said.
Vodafone Essar, Reliance Communications and Tata Communications exited the auction well before time due to high prices and limited number of slots. Idea Cellular also did not win the bid in any circle.
“The company decided to step away from the current auction of broadband wireless spectrum when prices went beyond rational levels owing considerably to the artificial scarcity of spectrum with just two slots available and 11 bidders in the fray,” Vodafone said.
POWER
E-auctioning of electricity kicked off in India with the launch of the Indian Energy Exchange (IEX) in June 2008. Since then, the daily volume of power traded at the exchange has gone up from around 60 megawatt hour (MwH) to over 37,000 MwH currently. However, even today, the platform is largely viewed as one catering to the short-term power market, at best, owing to uncertain price movements.
“E-auction is good for covering short-term shortfalls. It is a risky proposition for long-term investors as there is no clear trend of price movements. The prices are generally at a premium and sometimes become erratic,” said a senior analyst.
Uncertainties in supply are another hurdle. “Also, there is no surety of power supply. For a long-term player, who would be executing big power projects, e-auction does not make sense because of supply and price movements. There is no information on what will be the future price too.”
In addition to the problem of limited transmission infrastructure to evacuate power, the widening gap in the demand and supply of power often forces deficit-prone northern states to buy power from the exchange at prices as high as Rs 15 per unit, significantly higher than the Rs 3-4 per unit cost of generating power from a thermal power station.
REAL ESTATE
The e-auction of mill properties by state-owned National Textile Corporation (NTC) has received good response from the developers and consultants. For the first time, NTC e-auctioned two of its prime mill lands in Mumbai, in which Indiabulls bagged both the plots. Enthused by the response, NTC plans to auction online the rest of its mill lands in the country in the coming months.
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