101 cancelled mines to be put up for auction under new rules

Dual methodology for e-auction to introduce price ceiling for power sector

Bidding for coal blocks will now have different methodologies for the power sector and for other users. Where the end use is generation of power, there will be a reverse auction to prevent a cascading effect on power tariffs. For captive power generation, steel and cement sectors, there will be a forward bidding model.

The bid price will be benchmarked to Coal India's price of similar grade coal. That price will be the ceiling price for power sector bidders. For other bidders, it will be the floor price. A minimum of Rs 150 a tonne will be the reserve price for bidders from the steel, cement and captive power sectors. Besides, power producers who plan to sell part of their electricity in the spot market will also have to pay a minimum of Rs 150 a tonne. Power producers who have energy cost as a pass-through item in their power purchase agreements will have to pay at least Rs 100 a tonne.

Bidders will have to pay upfront the bid price equivalent to 10 per cent of the intrinsic value of the coal mine. Besides, they will have to pay a fixed amount for the value of land, mining infrastructure and other costs related to permits and licences borne by prior allottees. These assets are currently being valued by a committee under Pratyush Sinha, former Chief Vigilance Commissioner.

"Every mine will have a separate tender document based on its valuation of land, mining infrastructure and other leases and clearances," said a senior government official. The Union coal ministry is likely to seek Cabinet approval for the reserve price by next Wednesday and issue a 'request for proposal' the next day.

The e-auction will take place within 69 days of the issuance of a public notice regarding the same.

In the two-stage bidding, potential bidders will submit their offer price along with technical details to qualify for the next financial stage. The indicative price offer would be the bid price per tonne of coal produced.

In the second stage, 50 per cent of the qualified bidders will be allowed to participate in the e-auction.

The applicable floor or ceiling price for e-auction will be the highest or lowest indicative price offer received from pre-qualified bidders, according to the draft. "We are doing this to avoid any cartelisation. When the qualified bidder quotes his price in the e-auction, it will be in the band of his earlier submitted offer price," said the senior official.

In the first phase of e-auction, 101 coal mines have been put up for re-allocation, of which 42 are producing, 32 about to produce and the rest 27 unexplored. Of these, 65 will be auctioned and 36 allotted to public sector utilities in the power, steel and cement sectors. Of the coal blocks to be auctioned, 27 are for the regulated power sector and the remaining 38 for steel, cement and captive power production.

THE NEW COAL REGIME...

• Reverse auction for power generation sector — bidder who quotes the lowest tariff would get the mine for generation and sale of power
• Forward bidding for steel, cement and captive power production – bidder quoting highest price would get the mine for end use
• Floor price of mine based on Coal India’s rates
• Ceiling price for power sector to prevent high power rates
• Transfer of mining leases not allowed
• Coal production more than annual production to be sold to CIL
• Final reserve price of coal mine to be presented to Cabinet by next Wednesday
• Tenders to be issued by the end of next week
• E-auction to be held 69 days after the issue of public notice

The government, however, plans to restrict the free sale of surplus coal. In case of surplus production, the mine owner will have to sell the extra coal to Coal India at a notified price. Besides, there will also be a restriction on transfer of mining leases.

The draft rules restrict the transfer of mining leases by a successful mine allottee. This, however, stands in stark contrast with the proposed amendments in the Mines and Minerals (Development and Regulation) Act. Under the proposed section 12(A), a holder of a mining lease or a prospecting licence-cum-mining lease can transfer his leases to any person eligible to hold such leases. The seller is required to give a 90-day notice to the state government for permission, after which the transfer becomes effective.

A company would be eligible to bid for any schedule-II coal mine under sub-section (3) of section 4 of the Coal Mining (Special Provisions) Ordinance only if it has invested at least 80 per cent of the total project cost of the unit or phase of the specified end-use plant for which the company is bidding. "A company eligible to bid for any schedule-III mine shall have incurred an expenditure of not less than 60 per cent of the total project cost of the unit or phase of the specified end-use plant for which the company is bidding," the ruled notified last week said. Under schedule-II are the 42 producing coal blocks, while schedule-III lists the 32 that are about to begin production.

The Lok Sabha had on Friday passed the Coal Mines (Special Provisions) Bill which would replace the Ordinance. The Bill is required to be cleared by the Rajya Sabha, where the NDA will need the support of other parties.