Rules for coal-block auction finalised

The government on Tuesday approved a methodology for auction of coal blocks by competitive bidding. This will pave the way for the first auction of coal blocks in the country.

“The bidding process policy for coal blocks has been approved,” said Coal Minister Sriprakash Jaiswal after the meeting of a cabinet panel.

The methodology includes production-linked payment in rupees per tonne, in addition to a basic upfront payment of 10 per cent of the intrinsic value of the coal block.

“The intrinsic value of coal block will be calculated on the basis of the net present value of the block arrived at through the discounted cash flow method,” said a statement issued after the meeting of the Cabinet Committee on Economic Affairs.

“For the regulated power sector, it has been decided to provide 90 per cent discount on the intrinsic value for tariff-based bidding. This methodology will help rationalise the power tariff,” it said.

The selling price will be adjusted by 15 per cent to provide for inland transport cost that provides the mine-mouth price, said the ministry.

In order to avoid short-term volatility, the average sale price will be calculated by taking into consideration prices during the last five years.

“In order to ensure firm commitment, there will be an agreement between the ministry and the bidder to perform agreed minimum-work programmes at all stages. There would be development-stage obligations in terms of milestones to be achieved, such as obtaining mining lease and environment or forest clearances,” said the statement.

The bidder will have to give performance guarantee during the developmental stage of the block.  The new policy also provides for relinquishment of the block without penalty, provided the bidder has carried out the minimum-work programme stipulated in the agreement.

The Coal Ministry is likely to start the auction process for the blocks within the current calendar year, according to ministry officials. The government may initially put around four blocks on offer.