Coal news and updates

Coal allocation off the blocks

The government on Thursday proposed the methodology for auctioning 65 identified captive coal blocks of the 204 cancelled by the Supreme Court, reports fe Bureau in New Delhi. While 27 of these blocks will be allocated to the power sector where tariffs are regulated, the remaining 38 will go to the unregulated sector that comprises steel, sponge iron, cement and captive power.

Reverse bidding will be done in case of the power sector with Coal India’s price providing the upper limit and with a fixed R100 per tonne as reserve price to be realised by the state government concerned.

As for the unregulated sector, the highest bidder will win the blocks. While the floor price will be decided based on the formula for determining intrinsic value of each block, it can’t go below a predetermined R150 per tonne in all cases.

Thursday’s approach paper that details the bidding process, qualification criteria and methodology also says that bidders will have to pay 10% of the respective blocks’ “intrinsic value” immediately after they win the bids. The successful bidder will then pay the intrinsic value minus the upfront payment in annualised instalments on a rupees per tonne basis. The intrinsic value of each block will be determined by the government by computing its net present value based on discounted cash flow approach and any discount over and above this will be adjusted in the NPV itself.

A total of 101 blocks will be reallocated in the first phase. While 65 will be auctioned off, 36 will be allocated to central and state PSUs on a nomination basis.

The model tender document is open for public consultation till December 22 and the plan is to complete the first phase of the allocation process by March 31, 2015.

For the power (regulated) sector, the reverse auction methodology will be used whereby a bidder with the lowest bid will be declared the winner. In the case of power companies already getting coal from Coal India, the tariffs will be readjusted by the regulator to factor in the new (lower) price for captive coal discovered through bidding.

The ceiling prices for the bidding will be the prevailing CIL-notified price for the same gross calorific value (GCV) coal. The bidders will be required to quote lower than this price, keeping in mind that the fuel cost is a pass-through.

Sources in the coal ministry told FE that the earlier timeline for issuance of tender documents on December 22 is likely to be delayed by a couple of days. The ministry will then have to obtain the Cabinet’s nod on the methodology for fixing floor price which is likely to be brought before the Cabinet next Wednesday.

Source: The Financial Express