Not arbitrary or irrational
Apropos of “CAG on coal, again” (July 28), you have correctly asserted that the point of an auction is to ensure wide and transparent competition. The CAG report, however, does not formulate any parameter to assess the level of competition and then compare the coal auction against them. Economic theory assesses the level of competition on the basis of entry barriers. The present coal auction, in fact, created conditions for enhanced competition by permitting smaller companies — which would otherwise not have been able to participate in the auctions because of their size — to form joint ventures.
Even if we were to assume that joint ventures restricted competition, the fact remains that of the 214 bids received only 17 were from joint ventures — that is, only 8 per cent of the bids. Moreover, only one successful bidder was a joint venture company. Could 8 per cent of the bidders have restricted competition? It is also incorrect to state that multiple bidders were essentially from the same company. There were at least three independent bidders not associated or controlled by a competing company. In fact, if the bidders were “in-house”, newspapers like yours would have immediately raised a red flag, as the names of all the bidders were available in the public domain and were publicised by the media.
I would like to add that bidders had challenged these provisions in the court. The Delhi High Court, in its judgment in W.P. (C) No. 1384/2015, has concluded that the process was neither arbitrary nor irrational, does not favour any particular bidder and has worked out very well. You would acknowledge that in an auction the intrinsic value is only a indicative figure as the true value of the asset is determined by market forces, that is, demand and supply. There is, thus, no possibility of undervaluation in an auction where bids were received in many multiples of the intrinsic value calculated. Rajesh Malhotra Additional director general (media and communications), Election Commission of India, M/o Power, Coal and New and Renewable Energy, Press Information Bureau