Govt likely to adopt production-linked revenue sharing formula for coal blocks

The floor and reserve price for each block would be prescribed in rupees-per- tonne and would be fixed upfront by using the discounted cash flow (DCF) method widely used in investment finance, real estate development,and corporate financial management.

The upfront payment to be made by the bidder would be kept at a notional amount equal to 10 per cent of the reserve/intrinsic value of the coal block, said the minutes of the meeting.

However,with the aim of providing coal linkages to power projects through auction and also keeping the electricity prices in check,the reserve price would be discounted by 90 per cent for tariff-based power projects,it said. For power sector,ideally the block should first be fully explored,the reserve price based on DCF set,and then tariff-based bid should be invited,it added.

The idea behind giving this freebie to the sector is that by doing so the power tariffs would be reduced and this would reflect in low electricity bills. The reserve price discount would not be available for projects that seek coal blocks for generating power for their own use.

The draft coal block auction policy,based on the above recommendations,will be finalised with the approval of the competent authority,coal secretary SK Srivastava informed the IMC. The proposal for auctioning coal blocks through competitive bidding was first mooted three years ago.

The IMC also decided that besides explored blocks,the auction policy would include partially explored blocks whose data were recently upgraded on the basis of geophysical survey by Central Mine Planning and Design Institute (CMPDI).

That is because out of the six fully explored coal blocks,the net present value for three blocks is negative and hence it would not be prudent to offer such blocks. The shortfall would be made by offering 32 blocks which have been explored over a region,not a specific location.

For these regionally explored blocks,a minimum work programme (MWP) would be set by the coal ministry in lines with similar norms enunciated in the New Exploration Licensing Policy for oil and gas blocks,at the time of award to the licensee.

The licensee would have the right to relinquish or exit the block at the end of two years after carrying out the MWP to the satisfaction of the competent authority. If the bidder chooses to develop the block,a different set of obligations would have to be met.