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CEC tweaks Karnataka’s auction plan for Category-C mines

The Supreme Court-appointed Central Empowered Committee (CEC) has raised certain objections to Karnataka’s scheme for e-auction and re-allotment of 51 ‘C’ Category mines.

It has rejected the proposal of the state government to keep pellet makers out of e-auction. Instead, it has recommended to allow them to bid for those mines, which will be re-allotted through a transparent bidding mechanism.

The CEC, in a report submitted to the Supreme Court earlier this week, recommended for conducting online auction for 15 ‘C’ Category mines as directed by the Supreme Court in its April 2013 order.

The Government of Karnataka, in compliance of the directions of the Supreme Court, cancelled 51 mining leases through a notification on September 12, 2013 in districts Bellary, Chitradurga and Tumkur in Karnataka. The combined annual production from these mines is estimated at in excess of six million tonnes.

“The State government has defined the end users as the industries located or proposed to be located in the state of Karnataka and which are engaged or would be engaged in production of sponge iron and or pig iron and integrated steel mills. The CEC is of the view of that it would be appropriate to include pellet manufacturing units such as KIOCL, a government of India undertaking, in the definition of end-users,” the CEC said in its report.

The state government has stated that it would not oppose the same in its letter dated December 5, 2014 addressed to the CEC, it said.

Tushar Girinath, Secretary, Mines, government of Karnataka also confirmed that the government would allow pellet makers and beneficiation plants to participate in the e-auction process.

The CEC has also rejected the proposal of Karnataka government to disqualify the erstwhile Category-C owners for participating in the auctions even though they may be engaged in end-use operations.

This would effectively mean that the end users (existing as well as proposed sponge iron / pig iron / integrated steel or pellet makers) would not be eligible to participate in the e-auction if either such units or one of their promoters or shareholders and partners was also one of the promoters shareholders in the erstwhile lessee company / partnership firm of Category C mining leases.

“The CEC does not agree with the above condition particularly considering that (a) the erstwhile lessees of ?Category-C? mining leases have been permitted to continue holding and operating their ‘Category-A’ / ‘Category-B’ mining leases and (b) with the above condition only a few units will be left eligible to participate in the e-auction and which may result in inadequate competition,” the CEC said.

The CEC recommended that the above said condition should be deleted and all the end users should be held eligible to participate in the e-auction.

CRISIL Risk & Infrastructure Solution Ltd, the transaction advisor for auctioning, has prepared the tender documents. It suggested for conduction online auctions, which has been accepted by the government.

The state government has identified 15 mining leases to be auctioned in the first phase.

The government has entrusted Mineral Exploration Corporation Limited (MECL) with the task of assessing the mineral reserves position in each of the above said 15 mining leases. MECL has submitted reports for six mining leases and the reports for remaining nine mines will be available by June.

The selling price will be linked to the average of the IBM published prices of iron ore for different grades at all India and Karnataka levels (IBM published average price) for e-auction of ?Category-C? mining leases.

The floor price, for each of the mining lease, will be fixed at 35 per cent of the IBM published average price for the latest 12 months corresponding to the average grade of iron ore assessed by MECL to be present in the mining lease and by considering the ratio of lumps and fines as 50:50.

The bidding parameter will, subject to the floor price, be in terms of percentage of the IBM published average price that the bidder is willing to pay for the iron ore produced every year. The bidder who quotes the highest percentage of the IBM published average price (quoted percentage price) for a mining lease shall be the successful bidder for that mining lease.

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