LAHORE: The age-old so-called auction regime of crush (stone) and sand resources that was replete with monopolies by powerfully connected mafia and collusion of government officials has been washed away in Punjab by plugging the favourable legal loopholes, earning Rs10.23 billion by auctioning 532 blocks (sites) as against the previous just Rs3 billion.

The might of the money and the connection of these cartels and their ability to buy out or intimidate officials of the mines and minerals departments was not a secret.

It has been wiped away when the political leadership asked for “smooth supply of affordable crush (stone) and sand for mega projects of Punjab or those related to the CPEC,” official sources informed Dawn on Thursday.

Mines and Mineral Secretary Dr Arshad Mahmood confirmed the revamping of the auction system by plugging loopholes in the relevant rules that had permitted a few to control the over 700 sites or blocks of sand and crush (stone).

“Government officials would either collude with them, or buckle under the pressure of connections of these people. We have finally managed to wriggle out these sites from the clutches of a few, also regulating the price,” he gloated.

Crush and sand worth trillions of rupees are being used or are required for completing national-level mega projects like motorways or those under the CPEC. Punjab itself spends Rs40 to Rs50 billion on these two items out of its regular annual Rs400 to 500bn development budget.

Crush (stone) and sand business involves billions of rupees in Punjab. The crush alone involves nearly 100,000 labour force and 15,000 trucks. This is in addition to hundreds of crushers. The province has three crush centres namely Sargodha, Dera Ghazi Khan and Sakhi Sarwar, and around 500 blocks (sites) of sand along its rivers.

The total earning of the mines and minerals department in 2013-14 was around Rs1.75bn The income through auction of the crush and sand blocks was Rs7.5m, according to department officials.

The peanuts income was attributed to legal loopholes that were found and their plugging was suggested within the department through exhaustive consultation of multiple stakeholders.

These porous rules had led to large monopolies, inefficient auction pricing, illegal mining, corruption in the auction system resulting in low recovery of revenues going into the treasury while greedy contractors and certain corrupt officials were filling their own pockets.

As per the previous regime, crush and sand cartels would keep the price of auction low and would not allow any open competition, grabbing the sites as personal property by fulfilling whatever the legal requirements whenever it became necessary. Two powerful groups controlled 80 per cent of the crush in Sargodha and one man the entire sand sites in Lahore for decades.

These groups would keep the auction price low by shooing off any intending competitor. The absence of any reserved price mechanism would help them keep the next price low. Paying a little more than the previous bid made at least five years ago, was the practice.

In case of any “daring” party taking part in the auction, the “perpetual” cartels would take the offered price unrealistically high to make the site unaffordable for the “intruder.” There was no rule to keep it binding for a cartel to work on a site obtained at such a high price, allowing him to abandon it at will after some time.

This would create two problems -- one, short supply of crush or sand, and two, forcing the mines department to arrange a series of unsuccessful auctions for the same and surrender it to the same cartel at a through away price to have the items put on the supply line.

Stealing of either of the two items in the meantime at the abandoned sites would continue unabated.

These cartels would also reduce production of supply to create artificial dearth and sell the items in the black market. Inspections by mines and minerals department officials too had become risky both for life and job.

The department would divide its sand or crush sites into blocks and allowed them to be used by the cartels. These blocks were based on the measurement of the area, ignoring which had which type of stone or sand. The blocks containing the best ever costly stone would be doled out at the price of soil. There was no system of disqualifying any wrongdoer.

Dr Arshad said the department stopped this all by changing the rules and emboldening its employees to have them enforced with a firm hand. Cases filed in courts of law to challenge the new system too were fought systematically, and won.

Under the new auction regime, multiple legal interventions were introduced into the Mines Concession Rules, 2002. These included the introduction of block system based on the economic value of the underlying asset (identifying which contains which type of sand or stone).

Barriers to entry to open auction were curtailed, upper limit of holding on leases were introduced to eliminate monopolies.

The initial capital requirement to take part in the bidding was reduced to promote competitiveness among bidders. All the data about leases was put on GIS data base to facilitate investor regarding the location of the block, its commercial potential, nearby construction activity and its previous history of auction.

The most exploitative tool in the sector was the right of the lease holder to surrender it after auction without any reason. This right was abolished to facilitate genuine investors who were willing to put their capital in the business for appropriate returns rather than super-normal profit.

The process of conduct of lease was simplified to eliminate any discretion of department. The special privilege of licensing authority to accept offers (which would be under the table in majority instances) after finalization of the bid was abolished.

A culture of black listing was introduced to kick out the black sheep from the system. Multiple new blocks were carved out of the previously un-allotted areas to eliminate illegal excavation of sand or crush material. The most important intervention has been the introduction of “Reserve Price” for the block for auction, based on corporate and financial parameters. The forum of determination of reserve price was taken away from the department and placed under the cabinet sub-committee on mining.

“We have been able to auction 532 blocks at over Rs10bn in one year as against the previous bid money of Rs3bn, showing an increase of 300pc. New investors who could not even imagine of joining in too have been engaged,” the secretary said.

The blocks in Sargodha which were previously auctioned at Rs35m, now have been leased out for Rs750m. Another block which fetched previously Rs20m now was auctioned at Rs350m.

The Margala blocks which were under illegal mining, under the shelter of stay orders, were put into auction after a long legal battle up to the Supreme Court of Pakistan and fetched almost Rs1bn.

Published in Dawn, March 31st, 2017