With private players criticising the revenue sharing model for award of coal blocks for commercial mining, the coal ministry is considering “reverse auction” where the bidder who promises to charge the least from the ultimate consumer would be the block winner.
“In this method, bidder shall quote a minimum price (lower than a pre-fixed ceiling price) at which it will sell the coal. The L1 (lowest) bidder shall be allotted the block,” says a proposal.
The cap would be based on CIL’s notified price for average run-of-mine (ROM) coal and the final price would be fixed as “a percentage below the CIL notified price of yearly average ROM grade”. The ministry’s thinking is that the reverse auction would fulfil the government’s stated objective of providing cheap energy to the masses that still use the fuel for cooking. Mining for commercial exploitation comes with the permission to sell coal in the open market.
A paper floated last March by the ministry suggested “ascending forward auction” where the bid parameter was to be the percentage of the annual revenue that the bidder was willing to share with the state government owning the block. The minimum revenue for this sharing was pegged at 1.2 times the notified price.
Prospective bidders, who met the ministry officials last April, complained that since the CIL price was already on the higher side, a bidding based on sharing maximum revenue would lead to inflating the selling price of commercial coal.
Following this meeting, the ministry is also thinking of tweaking the eligibility criteria to restrict the bidding only among those who have experience of mining coal and lignite since coal exploitation required “more care, caution and expertise while mining”.
It is also considering changing the pre-qualification to those that have experience of mining 65 million cubic metres (MCM) of material in any one year during last seven years or of handling at least 60 percent of this volume from a single mine in the last three years.
The discussion paper had recommended eligibility criteria of a net worth of at least Rs 1,500 crore with experience of handling a minimum of 25 MCM per annum of broken rock strata in any coal/iron ore/limestone/bauxite and manganese mine in the last three consecutive fiscal years.
The NDA government plans to resume handing over blocks to mine coal for market sale after more than four decades as the Indira Gandhi government nationalized the sector in 1973. Presently, only state-owned Coal India mines for market sale while private players acquire captive blocks only to feed their power, steel or cement plants.
It proposes to give freedom in pricing and sale of coal, remove end-use restriction and provide flexibility to manage production based on market projections.
The government plans to bid out 30 million tonnes of reserves in the first phase to augment coal production beyond the target of one billion in 2020 set by Coal India plus the enhanced production expected from the coal blocks allotted or auctioned for captive end use.