Policies aimed at bolstering investment in energy sector

The Centre has decided to auction coal blocks to private steel, cement and power companies for captive use, a clear departure from the earlier practice of basing them on applications. It also decided to allow only public sector companies to explore shale gas.

Both these decisions were taken at a meeting of the Cabinet Committee on Economic Affairs on Tuesday.

The Government has been under fire for its earlier coal allocation policy ever since the Comptroller and Auditor General stated that the policy had resulted in a loss of Rs 1.86-lakh crore to the exchequer.

Both these policies break new ground. Till now, coal blocks were offered based on applications made by companies and then vetted by a screening committee. But facing flak from the CAG on the loss incurred by the exchequer, the Government has now decided to put the blocks under the hammer. The Government undertook extensive consultations and ground work before framing the policy.

Following today’s decision, the Government is expected to auction four coal blocks, with nearly 2,000 million tonnes of estimated reserves. This is likely to be done within two months. In all, the Coal Ministry has identified 12 mines for the power sector and another 24 for steel and cement companies. The blocks will be offered on a ‘production-linked payment’ basis, on a rupee-per-tonne mechanism. The bid winner will have to pay 10 per cent of the intrinsic value of the coal block up front.

The successful bidder will get two years to explore and five years to develop the coal blocks. The policy provides for relinquishment of the block without penalty, if the bidder has carried out minimum work, according to the agreement.

The Ministry of Environment and Forests will review the details of the coal blocks and communicate its findings before the blocks are auctioned. However, final approval will be subject to statutory clearances.

The American shale story is one that everyone wants to repeat. Not only is shale gas exploration different from conventional oil and gas drilling, it also requires intense participation of the State governments as land acquisitions and water are the key.

To begin with, the Government wants ONGC and Oil India to explore shale gas in the blocks they own. The companies will have to apply for grant of shale gas and oil rights and undertake a mandatory minimum work programme.

A company is permitted three assessment phases over a maximum period of three years each. Royalty, cess and taxes will be payable at par with conventional oil or gas being produced from that area, the Government said.


(This article was published on September 24, 2013)
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