CCEA approves methodology for coal block auction

The Cabinet Committee on Economic Affairs Tuesday approved the methodology for auctioning by competitive bidding of coal blocks.

"CCEA has approved the methodology for auction by competitive bidding of the coal blocks. The methodology provides for auctioning the fully-explored coal blocks and also provides for fast tracking the auction by exploration of regionally-explored blocks," said an official statement.

According to the statement, coal blocks will be put for auction after the environment ministry reviews them and bidders have to agree to a minimum work programme.

The statement said the intrinsic value of the block will be calculated on the basis of its net present value (NPV) arrived at through the discounted cash flow (DCF) method.

"To benchmark the selling price of coal, the international FoB (freight-on-board) price from the public indices like Argus/Platts will be used by adjusting it by 15 percent to provide for inland transport cost which would give the mine mouth price," it said.

To avoid short-term volatility, the average sale price will be calculated by taking prices of the past five years.

A 90 percent discount will be provided for the regulated power sector on the intrinsic value, which will help to rationalise power tariffs, the statement said.

Further, there will be an agreement between the ministry and the bidder to perform minimum work programmes at all stages. There would be development stage obligations in terms of milestones to be achieved, while the bidder will have to give performance guarantees.

The policy also provides for relinquishment of a block without penalty if the bidder has carried out the minimum work programme stipulated in the agreement.

The environment ministry will review details of coal blocks and give its findings before the areas are put to auction.

The government said exploration activities in identified blocks are at an advanced stage and are likely to be completed soon.