Coal news and updates

Responding to the proposal of the government to give comments to the draft rules for re-allocation of coal mines, the private power producers have suggested that requirement of the sector and bidders should be given preference while allocating the coal blocks.

 

The coal mine allocation process in the previous dispensation was based on parameters like coal quality and the sector-wise coal. “However, these dynamics stand altered to a large extent today. If the previous sector-wise segregation was to be retained for the Schedule II mines, only 5 blocks would be available for Independent Power Producers (IPPs),” Association of Power Producers (APP), the representative body for private sector power producers said in its comments on the draft rules of e-auction.

 

It has also asked if the mine awarded through auction is not sufficient to meet the end use plant’s requirement, the coal linkage should be provided for the balance coal requirement.

 

In the first phase of re-allocation, 42 working coal mines and 32 in line to start will be offered to developers with notified end-use projects in power, steel and cement sector . Government in its draft rules has said that coal mines would be allotted to the state owned companies and auctioned to the private players.

 

“Applicant may be allowed to bid for a coal block larger than its 100% coal requirement. In such a case, the surplus coal could be given to the nation through Coal India limited (CIL) at a transfer price. Large capacity mines would be in the interest of coal conservation & scientific mining,”

 

It has also asked for relaxation on the power purchase agreement (PPA) requirement. “For power projects coal blocks should be made available in auction without any precondition of long term PPA. If the mine is taken and there is no PPA available then the developer will be stuck with coal & it will lead to capacity booking,” APP said in its comments.

 

The association also said price discovery through auction process should form benchmark for pricing mines through allotment route as well. This, APP believes would give the private players a level playing field with the government companies.

 

The bidding amount, which the government is yet to calculate, would be segregated into two parts – fixed and variable. While the fixed cost will constitute the cost of land and other assets associated with a particular mine, variable is the reserve price of coal, to be based on geological reserve of the mine.

 

Ministry of coal is yet to formulate a methodology for deciding the reserve price of coal block auction. APP has suggested that reserve price and upfront payment should be based on actual mineable reserves (as assessed by CMPDIL) and not on the basis of geological reserves.

 

The demands in a nutshell:

 

* Requirement of bidders should be priority while allocating coal blocks

 

* Should be allowed to bid for more than 100% requirement

 

* Balance demand, if left, should be met by necessary coal linkage

 

* Reserve price of bidding should be based on actual mineable reserves than geological reserve of mine

 

* Price discovery by auction should be benchmark price for all

 

* Parameters for the calculation of project cost should be applied uniformly for deciding the eligibility of all bidders

 

* Weightage of technical and financial bid should be defined clearly

 

 

Source: http://www.business-standard.com/