Coal news and updates

Methodology for fixing floor/reserve price approved

December 29: The Ministry of Coal (MoC), through a notification issued on December 26, has approved the methodology for the fixing and reserve prices for auction and allotment of coal mines in accordance with various rules of the Coal Mines (Special Provisions), Rules, 2014.

As per the notification, for fixing the floor price for auction to sectors like steel, sponge iron, cement and captive power, the intrinsic value (IV) of the coal block will be calculated by computing its net present value (NPV), based on the discounted cash flow (DCF) method.

The 10% of this IV will be payable upfront in 3 instalments of 5%, 2.5% and 2.5%, while the final NPV (after subtracting the upfront payment received from the bidder) will then be annuitised to become equal to a unit ratio in terms of Rs/ton.

In this case, for calculation of IV, the extant notified price of CIL (price of domestic coal) for the non-regulated sectors for the corresponding GCV bands will be taken into account for computing the NPV. However, the floor price shall not be less than Rs 150 per ton.

The resultant bid price (Rs/ton) shall be considered as base for the year of bidding with yearly escalation linked to the WPI and the statutory royalty payable on coal will continue to be governed as per extant rules.

For fixing the reserve price for coal mines to be allotted for power projects to be set up in future on tariff-based bidding (case 2) and government companies for specified end uses, a fixed reserve price of Rs 100 per ton of coal shall be payable, as per actual production by the successful allottee.

This would ensure that there is no adverse impact on power tariffs and the successful allottee shall have to pay upfront payment, as may be prescribed in the tender/allotment document.

There will be no bidding on coal under these two categories, as per the approved notified circular issued on December 26.

The reserve price (RP) may be escalated using a pre-determined formula that is prescribed in the now prevailing standard bidding documents for Case -1 bidding as formulated by the Ministry of Power for escalation of fuel costs from captive mines.

However for existing generation capacity contracted through tariff bids-based PPAs (Case-2), arranging fuel is the responsibility of the power procurer and in such a case projects shall not be eligible to participate in the auction process for the coal blocks, according to the notification.

For fixing the ceiling price for coal mines to be auctioned for generation capacity having cost-plus PPAs or for generation capacity having tariff bid-based PPAs (Case-1), generation capacity to be contracted through cost plus PPAs or through tariff bid based PPAs in future there would be a ceiling price of CIL-notified price for each coal block and the bidders will be mandated to quote lower than this ceiling price.

The ceiling price shall be fixed at run-of-mine (ROM) price of the equivalent grades, as specified by CIL for the power sector. In this case, the bidder quoting the lowest will be the successful bidder.

This will be taken for the transfer price to the plant from the coal block and the resultant bid price of coal will be escalated in line with a pre-specified formula for the purpose of considering the energy charge.

“The method will ensure that the benefit of lower bid price is passed through to the consumers,” the notification said.

To ensure that the benefit of coal is passed on to the consumers, the notification has suggested a slew of formulae – for instance, the purpose of determining the fuel cost for cost-plus PPAs, the appropriate commission will allow the bid price of coal along with subsequent escalation as provided in the coal block bid document as being equivalent to the ROM cost of coal together with other allowable expenses and levies.

The notification clarified that any further revision of CIL price after the bid due date would not have any impact on the bid price of the blocks already bid as escalation on that price has already been provided, but for future bidding of coal blocks, the then prevailing CIL price will be considered for determining the ceiling price.

It also clarified that for auction/allotment of coal blocks for the purpose of sale of coal as provided in Section 4(2) of the Coal Mines (Special Provision) Ordinance, 2014, a separate methodology will be formulated.