Reverse Auction, captive coal block

Please illustrate what is meant by Reverse auction in the context of Coal auctioning. Also, please emphasize its importance in keeping the consumer tariffs low.

What is auction?

Buying and selling to the highest bidder

A base value from which sellers can give competitive prices.

Those who have money and interest bid to acquire, generally bids start from base price and increase till someone cannot outbid the highest bidder.

What is reverse auction?

One who can deliver the project with the minimum price involved

The seller bids and gives the block to the one who accepts the lowest bid..

Whether or not to go for a forward auction or reverse auction depends on the purpose for which this natural resource is going to be used. So, when do we go for reverse auction of coal mines?

Why should the govt give coal to the lowest bidder?

There is only one seller, I.e. the government, when it comes to Coal Blocks auction.

Coal blocks are only "leased" to extract the resource out, to a bidder who bids for extracting coal at low cost.

It is given away to the most efficient bidder (one who quotes the lowest price for extraction).. So, the coal price will be low.. So, the power produced from this coal will be cheaper.. The consumers will get power at a lower cost!!

It is a reverse auction because the private producers bid.. They are actually the sellers(they sell their service of coal extraction to the government)

It is made sure that the power producers pass down the benefits to the consumers by passing a law to fix the tariff.

It will benefit the government here..

It will be able to raise a huge revenue..

This reverse auction is in line with art 39(b)

What does article 39(b) of constitution say?

39 b: that the ownership and control of the material resources of the community are so distributed as best to sub serve the common good;

What is a captive coal block??

Here, the miner himself is the power producer.

A captive coal block- a particular block is allocated to a company(like reliance or tata,) for a specific purpose (like power production,)..

Even in coal mining, forward auction (selling the coal to the highest bidder ) is used when it is sold to steel companies, etc.. Here, the objective is revenue maximization

Steel, etc are commodities which are mainly used for capital goods manufacturing. The consumer of steel, therefore, are large industries.. So it is not necessary for the government to keep it artificially low..

Forward auction v/s reverse auction

In layman terms, the forward auction bidder is saying "I'll mine this coal block, at a price which I will give to the government; and use this coal to produce my cement or steel"

Whereas for reverse auction- bidder is saying "I'll mine coal at such a low price that I will still earn profit on selling power at rates agreed b/w me and the government"