Coal mine auction to count royalty offer, give price freedom

03/10/17

India is planning a simple, attractive system for auctioning coal blocks to private firms by the year end, a measure government officials believe will help accelerate the infrastructure industry and have a multiplier effect on the economy. Major foreign and Indian companies are eyeing the auction, which is expected to grant operational freedom on pricing and the sale of coal, official said.

According to the proposal, the company that offers to pay the highest amount of royalty to the state will win the block. The government does not propose to quote the value of the blocks, as has been the practice for the captive coal-block auctions. Miners will offer value for the blocks depending on their own assessments and the highest bidders will succeed.

“The awardee of the commercial coal mine will not face any restrictions on selling the coal or pricing the coal. However, in case of undue profits, when coal prices rise above normal, the miner will have to share a percentage of the gains with the state government,” a government official said.

The winning price bid will be linked to an inflation-linked escalation index for the life of the mine. The index is likely to be benchmarked to Coal India’s notified price for an equivalent grade. The government has already identified coal blocks for auction to private firms for commercial coal mining in states such as Odisha, Chhattisgarh and Jharkhand. The blocks include Chendipada I and II, Durgapur II, Mahanadi, Machhakta, Mednirai, Madanpur, Shankarpur Bhatgaon II Extension, and Dongri Tal-II.

“Commercial coal mining by private companies is a stimulus. If the coal sector picks up, the infrastructure performance will pick up and that will have a multiplier effect on the economy. The auction is expected to attract global mining giants to the country and make the sector more competitive and cost-effective,” the official said.

The Coal Mines Special Provision Act 2015 gives government the power to allow private companies to mine coal and sell it in the open market. So far, private firms could mine coal only for captive consumption. The move also ends four decades of state monopoly of Coal India Ltd but the government has several times assured the company that its interests will be protected. However, industry insiders expressed apprehensions of tepid response for small and medium sized blocks.

Source-ET