Coal news and updates

In coal light: After ordinance what?

The ordinance to facilitate e-auction of coal blocks to private firms for captive use is intended to clean up the mess that has crippled the sector and contributed to the UPA’s defeat in the summer elections. PRIYADARSHI SIDDHANTA recaps the story and looks ahead.

Why was Monday’s ordinance brought?

On September 24, the Supreme Court quashed allocation of 214 captive coal blocks out of 218 allotted since 1993 saying they were given in an illegal and arbitrary manner. The ordinance allows the government to acquire the land of the cancelled blocks and plants on it, and e-auction them.

What will be the auction’s method?

Coal ministry has proposed a production-linked payment mechanism: payment on a rupee-per-tonne basis, along with basic upfront payment of 10 per cent of block’s intrinsic value. Upfront payment is intended to ensure winning bidder has an incentive to develop the block from early. Intrinsic value of mine will be derived from average selling price of past five years, based on free-on-board prices from published indices of Platts or Argus, who give energy price assessments.

What option does the proposed committee to determine the floor price have?

According to the Central Mine Planning and Design Institute (CMPDI), total value of a block should be obtained by computing its net present value based on the discounted cash flow (DCF) approach. The DCF methodology uses future free cash flow projections and discounts them (most often using the weighted average cost of capital) to arrive at a present value, which is used to evaluate the potential for an investment proposal. The state-run companies need not participate in the auction; they can get mines based on their end-use projects. Auctioning would be for private firms.

How many blocks are likely to be put up for auction?

The government has identified 52 blocks for e-auction in the first phase. According to the coal ministry, there are currently 40 producing blocks. While the SC has spared four blocks — two belonging to an UMPP at Sasan, and one each to state-run NTPC and SAIL — the allocation of the remaining mines would stand cancelled after March 31, and can then be put up for auction. Also, six mines are scheduled to commence production soon, and in another eight blocks, green clearances have been secured and substantial land has been acquired. In another 130 blocks, detailed exploration is either complete or is under way. These blocks are yet to get statutory clearances, and it may be two years before they can be made operational.

What is the employment potential involved?

Coal ministry has assessed that for 2014-15, direct employment for 16,000-20,000 workers could have been generated at a production level of 50 million tonnes per annum. Employment would be generated in downstream sectors such as power, steel, sponge iron and cement as well.

What has been invested in the allocated coal blocks so far?

According to the economic adviser to the coal ministry, up to March 2014, the total investment in captive mines is Rs 2,91,623 crore, of which Rs 2,53,812 crore is for end-use plants - which works out to 2.5 per cent of the GDP at market prices of 2013-14. The Department of Financial Services of the finance ministry wrote to the coal ministry on August 30 that around Rs 3 lakh crore is outstanding in the state-run and private banks accounts of projects that are based primarily on coal.

Source: The Financial Express