Coal auction: Govt fixes floor price at Rs150 a tonnehttps://indianexpress.com/article/business/business-others/coal-auction-govt-fixes-floor-price-at-rs150-a-tonne/

Coal auction: Govt fixes floor price at Rs150 a tonne

Forward bidding would be the methodology for firms in iron and steel, cement sectors.

The government on Thursday announced draft rules for auctioning 92 coal mines in the first phase and fixed the floor price at Rs 150 a tonne for thermal power, steel and cement sectors.

In its blueprint for the auction, the coal ministry said the e-auctioning process would be executed through forward and reverse methodologies. Forward bidding would be for companies engaged in production of iron and steel, cement and generation of captive power. The reverse bidding would be only for bidders in the power sector, according to the draft rules. Prospective bidders have been asked to furnish their comments by Monday.

The rules suggest that the intrinsic value of a block has been calculated by computing its net present value (NPV), based on a discounted cash flow (DCF) approach. The bidders would have to shell out 10 per cent of the NPV as upfront payment. The DCF methodology uses future free cash flow projections and discounts them (most often using the weighted average cost of capital) to arrive at a present value, which is used to evaluate the potential for an investment proposal.

The ceiling price of mines for power projects having cost-plus power purchase agreements will be “the prevailing Coal India notified price” and the bidder will quote lower than this ceiling price.

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The successful bidder will have to shell out Rs 100 a tonne as fixed reserve price as per the actual production. For power plants having uncontracted capacity, the winning bidder would be restricted to cap the “merchant capacity at 20 per cent of the installed power capacity linked to the allotted coal mine… the reserve price in such cases shall not (be) less than Rs 150 per tonne,” the ministry said.

If a company or joint venture produces coal in excess of its annual requirement, the fuel will be sold to Coal India at the bid price or alternatively at prevailing CIL price for similar grades. A company would be eligible for bidding, provided it meets requirements like time-bound payment of applicable additional levy in case it is a prior allottee. A firm would be treated as ineligible if it has been “convicted for an offence relating to coal block allocation and sentenced with imprisonment for more than 3 years”.

The Lok Sabha had last week passed a Bill which provides for fresh auction of 204 coal blocks whose allocations were cancelled by Supreme Court in September.