There may be no going back on bidding for coal blocks by the government but the new policy would put a price to mining rights for even government-controlled Coal India Ltd (CIL). The coal ministry has decided to charge Coal India a “reserve price” for the 116 coal blocks allotted to the state-owned miner.
While this would push up the price of CIL sold coal, it would be the second such land-mark move by the United Progressive Alliance government aimed at correcting the policy imperfections that have long-prevailed in the coal sector in the wake of the current political storm over coal scam. The first “course-correction” move was to make it mandatory for captive mining companies to participate in tariff-based bidding for power projects. “We are going to ask CIL to pay a reserve price for all the 116 blocks allocated to the company last month. No reserves would be allocated free-of-cost now,” a senior coal ministry official told Business Standard. The exact details of how the reserve price for coal blocks would be calculated or the quantum of the outgo for the world’s largest coal miner on this account is yet to be worked out.
Though all government-owned companies will have blocks reserved for them, they would have to pay the reserve price. The new dispensation for coal blocks will be different from the government’s policy in the oil and gas sector where state-owned companies are considered on a par with private ones during the bidding for oil and gas blocks under the New Exploration and Licensing Policy (NELP). Companies are not charged an upfront payment under NELP but have to share a portion of their production with the government after recovering costs.
The coal ministry official also added that the quantum of the reserve price for CIL would depend on three factors – average grade or quality of coal present in the block, location of the acreage and accessibility of the Mining Lease (ML). The Comptroller and Auditor General of India (CAG), in its audit report on coal block allocations tabled in Parliament on August 17, had said the government extended undue financial gains totaling Rs 1.86 lakh crore companies by not following auctioning for allocations, in other words, allocating reserves free-of-cost.
Coal India had requested the coal ministry for allocation of 138 coal blocks with 57.5 Billion Tonne (BT) reserves in August 2008 to enable its subsidiaries to meet their long-term supply commitments. In August 2011, the ministry asked Central Mine Planning and Design Institute of
India (CMPDI) to include more blocks in the list. CMPDI indicated eight more blocks after its study taking the total to 146 blocks.
In September 2011, Coal India asked for allocation of 116 of these blocks to its subsidiaries. The rest 30 blocks could be used for non-CIL mining, it said. The 116 blocks were last month allocated to CIL by the ministry. A majority of these blocks are yet to be explored. Further, 27 of these blocks are falling in the “No-Go” zones.
