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Home News Power Sector News Coal, renewable, spectrum auctions led to 'winners' curse: Economic Survey 2018

Coal, renewable, spectrum auctions led to 'winners' curse: Economic Survey 2018

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Arun JaitleyThe Economic Survey expressed concern over aggressive bidding by private companies for bagging licences for spectrum, coal mining and renewable energy projects.

"In the case of spectrum, coal and renewables, auctions may have led to a winner's curse, whereby firms overbid for assets, leading to adverse consequences in each of the sectors; but they created transparency and avoided rent-seeking with enormous benefits, actual and perceptional," said the survey tabled in Parliament by finance minister Arun Jaitley on Monday.

It said the government's crackdown on corruption and weak governance have significant social and economic benefits, but these are not without challenges. Calling for policies that minimise costs wherever possible, it suggested greater reliance on using incentives and carrots than on sticks.

Informal cash-intensive sectors of the economy were impacted by demonetisation and the GST, the Survey said, while banning promoters of insolvent companies from the auctions under the Insolvency and Banking Code (IBC) had its own issues. While this discourages loan defaults, it has created the possibility of fewer bidders and lower prices in the auctions of insolvent firms, it said.

The Survey suggested greater focus on addressing the flow problem, or the policy environment that incentivises rent-seeking, than the stock problem. It prescribed calibrated rather than blunt instruments such as bans, quantitative restrictions, stock limits and closing down of markets, including futures markets.

The government has transparently auctioned coal mines, spectrum as well as wind and solar energy projects, but this has led to very aggressive bidding, threatening the viability of the sectors.

Feedback Infra chairman Vinayak Chatterjee said the method of reverse auction leads to two consequences, both extreme. "It leads to price discovery, benefiting the consumers, and on the other hand often kills the sector. The government should do a fine balancing act. So I advocate median bidding by eliminating outliers, which will force bidders to bid rationally yet maintain transparency," he said.

Companies have put in aggressive bids for bagging captive coal blocks auctioned after mass cancellations of coal mining licences by the Supreme Court in 2014. Banks are concerned over the viability of the low solar and wind power tariffs quoted by companies to bag contracts.

The survey said that states need to focus on reducing their technical and commercial losses through tariff revisions. "However, the higher tariffs face potential threat from lower solar and wind prices. Latest estimates indicate solar energy price of Rs 2.5 per kwh and wind energy price of Rs 3.4 per kwh," it said.

The wind industry is concerned over the steep fall in wind power tariffs.

Of the eight power companies that were allocated coal blocks, five have moved the courts to challenge the government's decision to disallow pass-through of quoted discount on coal cost on final power tariff. The companies bid aggressively to forego their mining costs for inclusion in tariff calculations.

The government has set up a panel headed by cabinet secretary PK Sinha and comprising secretaries of power, coal and steel, and top officials of several other ministries, to look into the reasons for low coal output from captive coal blocks and mull various options to raise their production.

Source- ET


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