Coal news and updates

Why the coal auction norms are sadly sub-optimal?

After many months of delay and dither, the government has tweaked the norms to allow competitive bidding for captive coal blocks. The overall policy framework is glaringly sub-optimal and very much a work-in-progress.

The continuing public-sector monopoly in the evacuation and mining of coal has led to huge shortages and a rising demand-supply gap, and the muddled via media of captive mining implies further distortions, inefficiencies and compromises, for example, on scale economies, in what are large, capital-intensive, long-gestation projects. The new bidding norms for captive mining try to bring some transparency in the allocation of coal blocks. The norms provide for production-linked payment on a rupee-per-tonne basis, so as not to needlessly jack up upfront costs for the successful bidder. Rather, what's mandated is a basic upfront payment of 10% of the intrinsic value of fully explored coal blocks (for reasonable certainty of geological data). There's also the provision for 90% discount on the intrinsic value for power producers given the regulated tariffs in the sector and the massive coal requirements for thermal plants. This means, in effect, that non-power users of coal would not be able to compete with power producers.

Further, there's an attempt to reduce uncertainty on clearances from the ministry of environment and forests as well, with the guidelines mentioning that the MoEF would review the details of the mineral blocks and communicate its findings prior to auction. It would make all the more sense to move to a system where all statutory approvals from the state and the Centre are available prior to bidding. Additionally, the norms need to have clear-cut rules for thirdparty access for surplus coal in the blocks. However, the real reform required to meet the energy demands of the growing Indian economy is to repeal the Coal Mines (Nationalisation) Act, 1973 and modernise market design for coal, with multiple producers seeking custom. A deep seated problem like coal calls for systemic policy overhaul to efficiently meet mounting demand, never mind our having the third largest coal reserves globally.

Source: The Economic Times