Path cleared for auction of coal blocks, 41 first

The cabinet Wednesday approved an ordinance for holding auctions of coal blocks, as well as the rules for their e-auction, thus launching the process of allocation of 204 mines that were previously cancelled by the Supreme Court.

"The coal allocations ordinance passed in the Lok Sabha, on which discussion was not allowed in the Rajya Sabha due to disruptions, was repromulgated today," Finance Minister Arun Jaitley told reporters here after a meeting of the union cabinet which also approved a hike in the foreign equity cap in the insurance sector.

"With this repromulgation, the unfinished process of coal block  allocations can begin again," he added.

With the cabinet approval of the guidelines for e-auction of  the blocks, the government has started the process auction of 41 coal blocks, the tender documents for which will be released Saturday.

"Twenty-four blocks are being put up for auctions in the first stage. The process will benefit the common man. Power tariff will not go up, I assure you, because in this case it will be reverse bidding, and tariffs will come down," Coal and Power Minister Piyush Goyal said. 

The regulated power sector will have reverse bidding with state miner Coal India's price providing the upper limit, and the bidder with the lowest bid will be declared the winner.
Elaborating on the auction methodology, Coal Secretary Anil Swarup said that for the unregulated end-use sectors like steel and cement, the highest bidder will win the blocks.

While the floor price will be decided based on the formula for determining net intrinsic value of each block, it cannot go below a predetermined Rs.150 per tonne.
The whole process will be conducted electronically and a web portal where prospective bidders can register themselves will go online Thursday, Swarup added.

The auctions are to held between between Feb 14-22 next year and the execution of documents is to be completed by March 31.

Swarup said that beyond this first lot of 41 mines, the government expects to start the process rolling for a total of 101 blocks by March 31. The remaining 203 mines would be processed thereafter.

"There are 380 million tonnes of coal lying in these mines and when extracted will help us stop imports and take us to the target of 1 billion tonnes of coal production in the next few years," Swarup said.

With a fixed reserve price Rs.100 per tonne and royalty from mine owners to be realised by the state government concerned, Swarup detailed the enormous benefits that would accrue to states where the mines are located.

"Mine owning states will get reserve price and royalty, while power consuming states will be benefited through tariff reduction," he said.

The difference between the auction capping price based on Coal India rates and the lowest bid price in reverse bidding will go towards tariff concessions.

"Payment to states from these 204 cancelled mines on account of reserve price to be collected by them, and royalties, is estimated to be Rs.700,000 crore over a thirty-year period.

The states to benefit most will be Jharkhand, West Bengal, Odisha and Chhattisgarh, Jaitley said.