‘For firms, aggressive coal bids to be credit negative’

But private sector companies which have bid equally aggressively for other blocks will not be so lucky. GMR Chhattisgarh Energy for instance has won Talabira I block outbidding Adani and Essar because it will pay Rs 478 per metric tonne (MT) of coal to Orissa government.

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These high prices paid by the coal miners cannot however be loaded on to the electricity they will produce from the coal, since those rates are tied under long term power purchase agreements they have signed on earlier.

As things stand, GMR will extract the coal incurring all costs including state levies, taxes and transportation charges without adding a paisa to the cost of producing electricity from its plant.

The coal ministry had estimated that if Coal India had mined the coal it would have cost it Rs 450 per MT.

The bidding war among the companies had begun from this ceiling price; each undercutting the other’s bid till prices reached zero and then moved to a premium payable to the state government where the mine is located, explains Nitin Zamre, managing director of ICF International a consultancy company in energy sector.

For each of the 15 coal blocks meant for the power sector, companies have stood conventional logic on its head to bid aggressively, which former power secretary Anil Razdan said defied logic. “The companies are gambling on huge improvements in their efficiencies to make this bidding work, as I see it”.

Rating agency Crisil agreed with this assessment in a note circulated on Wednesday. It said those companies which were yet to sign long term power purchase agreements stood to gain. “Initial bids indicate long-term strategic fuel security is getting precedence over near-to-medium-term profitability,” the Crisil note said.