The Union Cabinet on Wednesday approved the auction methodology for commercial mining and sale of coal by private companies. This includes a new revenue share model for bidding, eased eligibility criteria for bidders and performance linked incentives to boost coal production.
To improve investment sentiment in the coal sector during the current pandemic, auctioned mines under the new methodology will entail reduced upfront payment. The coal ministry has also introduced incentive for early production. "There will be 50 per cent rebate to the mine owner in the revenue share they pay to the state, in case of early production", said the coal ministry.
The new methodology provides that bid parameter will be on 'revenue share' mode. The bidders would be required to bid for a percentage share of revenue payable to the Government.
"The methodology is oriented to make maximum coal available in the market at the earliest and it also enables adequate competition which will allow discovery of market prices for the blocks and faster development of coal blocks. Higher investment will create direct and indirect employment in coal bearing areas especially in mining sector and will have an impact on economic development of these regions," said the ministry of coal in a statement.
Coal mines will be put for auction on the basis of revenue share instead of Rs per tonne. "Bidding shall start at 4 per cent floor price. Bid increment in the multiple of 0.5 per cent up to revenue share of 10 per cent and thereafter in multiples of 0.25 per cent," said the methodology of the coal ministry.
It further said the successful allottee shall pay revenue share to the government monthly. Coal ministry said the price of coal will be market-driven, with creation of a new National Coal Index (NCI). It will estimate the price of coal to be sold in open market from these mines and the revenue to be accrued to the mine-bearing states.
The government has also reduced the upfront amount that miners pay to the mine bearing state. It will be 0.25 per cent of the value of estimated geological reserves of the coal mine payable in 4 equal instalments. The upper ceiling for upfront amount has been fixed at Rs 500 crore for mines with reserve above 200 million tonne and Rs 100 crore for upto 200 million tonne reserves. Earlier the miner was supposed to pay the full amount, larger the mine, higher the upfront money.
Senior coal ministry official said this will push even smaller players to participate in the auction.
"The entire revenue from the auction/allotment of coal mines would accrue to the coal bearing States, this methodology shall incentivise them with increased revenueswhich can be utilised for the growth and development of backward areas and their inhabitants including tribals. States in Eastern part of the country will be especially benefited," said the ministry of coal.
Revenue share formula will be based on the National Coal Index (NCI). A senior coal ministry official said NCI to reflect movement of prices of coal in domestic coal market. NCI will be based on weighted combination of monthly prices of coal in various channels like notified prices, e-auction prices and import prices.