Coal news and updates

Reserve price of coal blocks to be 10% of intrinsic value

August 12: In order to keep power tariffs within control, the Ministry of Coal (MoC) has agreed to the suggestion of the Ministry of Power that the reserve price of captive coal blocks to be offered be limited to 10% of the intrinsic value of the block, said an official from the Ministry of Coal.

“This has been done to ensure that power generation costs are kept low, in the larger interest of keeping power tariffs low,” the official said.

Incidentally, a minimum price (floor price) is fixed by the government for the block to be auctioned.

To determine the floor price, first the intrinsic value of the block is obtained by computing its net present value (NPV), based on the discounted cash flow (DCF) approach and then any discounts to be given are factored in (as fixed by the government) by reducing the NPV accordingly.

The official said the final NPV (after discount and after subtracting the basic upfront payment received from the bidder) is then annuitised to become equal to a Rs/ton number.

The bidding methodology to be followed is based on production-linked payment and the Rs/ton bidding method as the criteria of selection, he said.

It is to be noted that to make the process of allocation of coal blocks transparent and objective, the Mines and Minerals (Development and Regulation) Act, 1957 (67 of 1957) was amended to authorise the central government to select through auction by competitive bidding, on such terms and conditions as may be prescribed, a company engaged in specified end-use as notified by the government.

The state government shall grant such reconnaissance permit, prospecting licence or mining lease in respect of coal or lignite to such company as selected through auction by competitive bidding. This, would however, not be applicable in two cases.

The first is where such area is considered for allocation to a government company or corporation for mining or such other specified end-use. The second is where such area is considered for allocation to a company or corporation that has been awarded a power project on the basis of competitive bids for tariff (including ultra mega power projects).