Coal news and updates

Coal min for Rs 150/ton floor price for auctioning mines

The coal ministry is looking at a floor price of not less than Rs 150 per tonne for auctioning coal mines to steel, cement as well as captive power plants and a reserve price of Rs 100 a tonne for mines to be allotted to government companies and power stations through the reverse auction method.

For the non-regulated non-power industries, state-run Coal India Ltd's notified price for similar grade of coal, instead of international mine-mouth price suggested earlier, would be used as benchmark for calculating the intrinsic value of mines.

The floor price of the blocks would be worked out by computing their net present value (NPV) through the discounted cash flow method. Winners from steel, sponge iron and captive power plant industries would have to pay 10% of the floor price upfront. Subsequently they would have to pay on per-tonne basis, an amount that would be calculated by annuitising the remaining bid value, first reported by TOI on November 7.

Sources told TOI that in view of the short time left for the auctions, the coal ministry is likely to table the proposed methodology for setting floor/reserve price at the next CCEA meeting, without waiting for comments from the other concerned ministries. These ministries would submit their comments at the Cabinet Committee on Economic Affairs meeting itself.

For power plants with cost-plus and tariff-based power purchase agreements, the reverse auction method is being preferred with a view to protecting electricity consumers from a tariff shock.

Under this method, the ceiling price for coal blocks would be set according to the run-of-mine price of equivalent grade specified by Coal India. Under run-of-mine scenario, the mined coal is of a size that can be processed straightaway without further crushing.

Bidders would then have to bid lower than the ceiling price. The bidder quoting the lowest would be the winner since it would also reflect that company's production efficiency. This bid price would be taken for transfer price of coal to the consuming plant.

Since the bid price would reflect on the transfer price, which is for internal calculations by the bidding company, royalty would have to be paid at Coal India's notified price only.

Provision for escalation of the successful bid prices under all categories is also being proposed. The escalation would be in tune with the Wholesale Price Index and would have specified norms for each category of bidding industries.

The reserve price or contribution to state governments from the blocks would be specified upfront to ensure the mine-bearing states are remunerated.

For allotment to power projects with tariff-based bidding or state generation utilities, the benchmark for calculating the net present value of the blocks would be Coal India's price for corresponding quality band.

While the process for setting the NPV of blocks could be the same for projects with cost-plus power purchase agreements, the value would be split into a per-tonne floor price amount over which the bidders would have to quote.

The government is set to auction coal blocks, including some in operation and several others close to production, after the Supreme Court in September cancelled all mine allotments since 1993. In October, the government brought an ordinance to take over the land and infrastructure of the cancelled blocks for auctioning them.

Source: The Times of India