Coal news and updates

Only fully explored blocks to be put up for auction

September 30: The government has decided to offer only fully explored coal blocks for auction under the competitive bidding route to private sector companies and has approved a methodology for the entire process, an official release said.

However, the auction would be fast tracked by exploration of regionally explored blocks through upgradation of geological data to a reasonable level of certainty, the release said.

The methodology approved by the Government provides for production-linked payments on rupee per ton basis, plus a basic upfront payment of 10% of the intrinsic value of the coal block.

The intrinsic value of the coal 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 price from the public indices like Argus/Platts will be used by adjusting the price by 15% to provide for inland transport costs which would give the mine mouth price, the release said.

In order to avoid short-term volatility, the average sale price will be calculated by considering prices of the last 5 years.

For the regulated power sector, it has been decided to provide for 90% discount on the intrinsic value for tariff-based bidding. This methodology will help in rationalising the power tariff.

In order to ensure firm commitment, there would be an agreement between the ministry and the bidder to perform agreed minimum work programmes at all stages. There would be development stage obligations in terms of milestones to be achieved such as getting mining lease, obtaining environment/forest clearances etc. The bidder will have to give performance guarantee during the developmental stage.

The successful bidder will get 2 years for exploration (for regionally upgraded blocks) and 5 years for development of coal blocks.

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

The Ministry of Environment and Forest will review the details of the coal blocks and communicate its findings before the blocks are put to auction. However, the final approval will be subject to the statutory clearances under the law.

Exploration activities in identified coal blocks are at advanced stage and are likely to be completed shortly. Thereafter these blocks would be put to auction under the Competitive Bidding of the Coal Mines Rules, 2012, which were notified on February 2, 2012, the release added.