India’s Coal Ministry Proposes Easier Auction Norm for Commercial Coal Mining

2-exclusive

India’s Coal Ministry has decided to adopt a more liberal approach to auctioning coal blocks as part of a strategy to open coal mining to the private sector.

Following a series of consultations with prospective investors, the Coal Ministry has opted for a reverse auction model, instead of a forward auction as envisaged in a working document dealing with the allocation of coal blocks to private miners.

Through the reverse auction, a coal block will be allocated to the bidder that offers the lowest price to end-users. The government will set a benchmark price, based on the notified price of coal charged by government-owned Coal India Limited (CIL), and bidders will have to compete quoting the lowest selling price below this benchmark, a government official has explained.

The Ministry initially proposed a forward process, which entailed a minimum revenue share with the government of 1.2 times the notified price of CIL. A bidder quoting the highest government revenue share would have been awarded the coal block.

The official says inputs received from stakeholders indicated that investors were against revenue sharing contracts through forward auction, claiming that sharing revenue above 1.2 times the notified price of CIL will force private miners to sharply increase their sale price and, thereby, render operations uncompetitive. At the same time, if CIL revises its notified price, it will force private miners to adjust their pricing.

It was also pointed out CIL’s notified price for coal was based on operational coal mines wherein several costs had already been amortised over years, whereas, coal blocks offered to private miners would be greenfield blocks necessitating pre-project expenses like land acquisition, mandatory approvals, and infrastructure and logistics developments, and hence a private investor would need to retain higher revenues, which would be hampered under a revenue-sharing contract with the government.

In another significant change from the proposed working note, the Coal Ministry has tightened the eligibility criteria for bidders at the auction.

The Ministry has now proposed that only private companies with experience in mining coal or lignite and having mined 65-million cubic metres of volume in any one year over the last seven years will qualify to participate in the auction.

This is in contrast to earlier proposed eligibility, which only stipulated minimum material handing experience and not necessarily in coal.

As reported by Mining Weekly Online early this year, the Indian government changed the legislative policy to open up commercial mining to private investors for the first time since the coal industry was nationalised in 1973. The government proposed to auction coal blocks with estimated reserves of 30-million tons through auction in the first tranche.

Successful bidders will have full freedom for commercial mining and merchant sales of coal, moving beyond current rules which permit private miners to mine only for captive consumption.

Source-miningweekly