CIL's explosives auction fizzles out

KOLKATA: Coal India’s (CIL) much-hyped reverse auction to buy Rs 1,380 crore of explosives has bombed. None of the 26 explosives makers participated in the bidding when the auction was open on January 4, 5 and 7. Something that has compelled CIL to reschedule it to January 15, 16 and 18.

However, explosive makers expect CIL to draw a blank on these new dates as well if the coal behemoth does not revise the price ceiling for various explosive products. So much so, if CIL does not revise the prices, its battery of explosive suppliers may freeze supplies, and in turn, derail CIL’s production schedules.

Significantly, in a reverse auction, the buyer puts a ceiling price for the product it buys. Bidders need to quote lower than the ceiling price and the lowest bidder (L1) wins the contract. Others willing to supply have to match the L1 price.

Confirming the development, CIL chairman Partha S Bhattacharyya told ET: “Explosive makers did not bid in the reverse auction during January 4 to 7. If they continue to refrain from bidding, we may black list them for life.” CIL happens to be one of the largest buyers of explosives in India.

“Explosive makers are not too happy with the price ceiling for various explosive items fixed by CIL. The rates offered for various products do not reflect the true prices since these are based on certain provisional figures. We are not too keen on participating if these ceiling prices are adhered to. Prices of various products arrived at by CIL were based on provisional cost of living index published by RBI for September. This, we believe, does not reflect the correct prices of various products,” said the CEO of a large explosive supplier on condition of anonymity.

Another spokesperson of a leading supplier said the cost of transporting ammonium nitrate was slated to rise substantially since new legislations on transportation had been enacted recently.

Ammonium nitrate is the key ingredient for making explosives and the government has asked us to employ two armed guards with every vehicle carrying such material. Additionally, all trucks carrying the chemical need to be fitted with global positioning systems (GPS).

All these are expected to be adding to costs substantially and it will have to be borne by us. The price of ammonium nitrate quoted by CIL, they feel, does not factor in these increased costs.

The reverse auction conducted by CIL is to secure supplies for 2010-11. However, if the impasse, is not sorted out, and manufacturers stop supplying, the coal behemoth may be in for some trouble. CIL buys them to explode soil covering and coal so that it can then be removed and used. The explosives, used in a controlled form, loosens the soil as well as the coal in mines so that the overburden (the soil) can be removed and coal extracted. Large players, include Indian Explosives, Indian Oil Corporation and Gulf Oil. In case, as explosive supplies dry up, coal production will come to a screeching halt.

“Currently, CIL is buying explosives at prices arrived at in the previous auction which was held a year ago. This contract has, however, been terminated with effect from November 30. It was later extended till such time the new contracts are signed,” said NC Jha, director technical, CIL.

Asked to comment on the issue Mr Jha said: “We feel the ceiling prices offered by CIL are fair enough and suppliers should not have any issue participating in the reverse auction.”