Commercial coal mine auction during Covid-19 a dampener: Investors

In the first set of queries submitted to the Union Ministry of Coal, several investors have raised concerns over the timing of commercial coal auction, citing Covid-19 as the dampener. They also asked the government to consider lowering the bid security and upfront payment amount. 

Close to 80 queries have been submitted to the coal ministry on the MSTC e-auction platform. The Centre last month had commenced India’s first auction of coal mines for commercial mining and sale in the open market by private companies. This was followed by a Union Cabinet decision to ease the qualification criteria and auction methodology to attract industry interest in commercial coal mining. 

Asking for a deferment of the auction process by three months, an investor said this would help bidders take an informed decision. “Identifying reliable coal customers to purchase coal is crucial for the project to take off and sustain successfully till its completion. The grade of coal plays an important role. Any variation in the stated coal grade and actual coal grade will stall the project. It requires sufficient time to assess the grade of coal and identifying the coal purchaser. The coal block projects require huge capital investment with a lot of uncertainties,” said the submission. 

The coal ministry has responded, saying the last date of request for the site visit has been extended to July 15. It was earlier July 3. 

On queries about environment and forest clearance, the Ministry of Coal said all clearances will have to be obtained by the successful bidder. It said a single window clearance is being devised for faster online processing. Same would be for evacuation infrastructure which miners would have to build themselves. However, the government is “investing in the evacuation infrastructure”, said the coal ministry. 

Regarding queries about labour rights and wages, the coal ministry said miners will have to adhere to all applicable laws and “good industry practices”. 

Coal mine development and production agreement defines ‘good industry practice’ as “the exercise of that degree of skill, diligence, prudence, and foresight which would reasonably and ordinarily be expected to be applied by a skilled and experienced person engaged in the international mining industry”. 

Several interested bidders have also urged the coal ministry to reduce the upfront amount and bid security needed to be submitted prior to the bidding process. 

“Performance security for large size blocks is very high. It will be difficult to arrange such huge sums of bank guarantee before financial closure. Hence, may please keep cap on the performance security, based on the size of block till commencement of production,” said one submission. 

Another submission said the government should reduce the bid security amount in view of “financial strain due to Covid-19”. The coal ministry has responded to such queries, saying the amount will remain the same as mentioned in the standard bidding document. 

The upfront amount for mines placed for bidding ranges between Rs 7 crore and Rs 500 crore. Under the new methodology, it is 0.25 per cent of the value of estimated geological reserves of coal mine payable in four equal instalments. 

The bid security is in the Rs 1-100-crore range for the offered mines. This is the bank guarantee that a bidder has to submit. This is 20 per cent of the upfront amount in case of explored mines and 25 per cent of estimated exploration expense for unexplored mines. 

After the bidding, winning bidders will have to submit performance security, which is a one-year royalty and estimated revenue of one year from the mine.