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All you wanted to know about: e-Auctions

| Updated on November 17, 2014 Published on November 17, 2014

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After the Supreme Court recently pulled up the Government for arbitrary coal block allocations, the Centre decided to put up the blocks for e-auction. This evokes some déjà vu, because the Government did the very same thing to sell off telecom spectrum after the Court declared the allocations illegal in 2012.

What is it?

E-auction is the process of conducting an auction to sell assets, natural resources or other goods through online competitive bidding. What does a typical e-auction involve? First, the value of the asset being auctioned is ascertained and a floor price — the minimum amount that will be acceptable by the seller — is worked out. Then, those interested in participating have to register themselves on the seller’s online platform. Thereafter, earnest money is collected from the shortlisted buyers.

Once the e-auction commences, participants submit their bids during the specified period without having to be physically present at a particular place. Once the auction closes, a report is generated and the winners are intimated. The successful bidders then deposit the balance amount, after which they are issued a delivery order against which they can take delivery of the asset or resource from the seller.

Why is it important?

The biggest advantage that an e-auction offers over a physical auction is complete transparency and participation from the widest possible range of prospective bidders. E-auctions are fairer as they don’t entail human intervention unlike physical auctions where sellers post advertisements and buyers send in bids through snail mail. Large public sector miners such as National Mineral Development Corporation and Coal India already sell iron ore and coal through e-auctions. Consumer companies such as Dabur also use e-auctions to procure key raw materials from global vendors.

The e-auction of coal blocks ends regulatory uncertainty for companies from sectors such as power and steel which use coal as a key input. And given the skeletons now tumbling out of the closet for almost every natural resource or asset being arbitrarily allocated by the Government, e-auctions are set to gain much popularity.

Why should I care?

By ensuring that key industrial inputs are sold through transparent bidding, e-auctions reduce the scope for unfair practices such as bid rigging and bribes to bag allotments. This will mean more realistic prices for natural resources. That’s good news for users of power and steel.

By maximising the price to the exchequer, they also help fill the gaps in the government kitty.

You can now be sure that the country’s precious resources are not being given away at throwaway prices to undeserving users. E-auction of coal blocks may help ensure that the user sectors now have a fair process to procure their raw material. If you have been holding stocks of companies from these sectors, you would have made losses on many of them recently. With the companies now having a chance to bid back for their lost blocks, you might just want to hang on.

Bottomline

E-auctions do away with nepotism and under-the-table deals when the state’s assets are sold off. That’s one blow against corruption; just one, though.

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Published on November 17, 2014

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