Cabinet approves coal block auction policy for private firms

A coal ministry release said the methodology provides for auctioning the fully explored coal blocks and also provides for fast tracking the auction by exploration of regionally explored blocks through upgradation of geological data to a reasonable level of certainty. ‘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 the release.

The policy will ensure greater transparency and will pave the way for the government to auction explored blocks. The policy provides for production-linked payment on a rupee per tonne basis, plus a basic upfront payment of 10 per cent of the intrinsic value of the coal block. The intrinsic value will be calculated on the basis of net present value (NPV) of the block arrived at through the discounted cash flow (DCF) method, the release said.

‘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 per cent 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. For the regulated power sector, a 90 per cent discount will be provided on the intrinsic value. This will help to rationalise power tariffs, the government said.

To ensure firm commitment, 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 such as getting mining leases and obtaining environment/forest clearances, 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 statement said the Ministry of Environment and Forests will review details of coal blocks and communicate its findings before the areas are put to auction and final clearances will be subject to statutory approvals.