Government may auction five captive coal assets in February

Five captive coal assets, including three coking (metallurgical) and two thermal (steam) coal reserves, may be auctioned in February, primarily for the iron and steel sector, according to sources.

On behalf of the Coal Ministry, the Ranchi-based Central Mine Planning and Design Institute (CMPDI), assisted by Crisil, will conduct the auction.

CMPDI is a wholly-owned subsidiary of national miner Coal India Ltd.

Of the three coking coal reserves, two are to be developed as underground mines and one opencast. All the blocks are in East Bokaro of Jharkhand and may produce a total of 60 million tonnes (mt) coal over a 25-year period.

Of the two thermal coal assets, one is in Ranigunj in West Bengal and the other one is in North Karanpura of Jharkhand.

Steep conditions The Ranigunj asset is smaller and is capable of producing 17 mt coal, through underground mining, during its lifetime. The Jharkhand asset is estimated to produce 1.5 mt annually, through opencast mining.

According to the auction methodology, the successful bidder has to pay 10 per cent of the net present value (NPV) of the asset as an upfront payment, say sources.

Together with payment for exploration cost incurred in the block (Rs 3-5 crore), the upfront payment is estimated to hover around Rs 35-45 crore.

‘Reluctant’ CMPDI

The rest of the bid value will be calculated on per tonne of production. CMPDI will identify a floor rate, based on NPV, for such bidding.

Tenders will be collected in sealed envelopes as the Coal Ministry did not approve the dynamic e-auction method.

The blocks will have to be developed within seven years, failing which the earnest money deposit will be forfeited.

Interestingly, sources said, CMPDI was not keen to conduct the auction.

The institute felt the decision is a deviation from the oil and gas block auction process where the sectoral regulator Directorate General of Hydrocarbons (DGH) conducts the bidding process.

As an alternative, CMPDI proposed that the ministry should conduct the auction directly through an independent agency (like Crisil).

The coal ministry, however, held that CMPDI is historically held as the technical arm of the Government and should play the anchor.

Cooling down effect? The rush for coal block auction and the proposed bidding norms, however, raised eyebrows in the industry. There is little doubt that the United Progressive Alliance government would be trying to send positive signals before the general election in April.

But considering the hurdles before the mining industry and the overall depressed market sentiments, the seven-year deadline for asset development and the steep upfront payment clauses may prove to be a dampener.

There are high chances that the auction round will fail to attract sufficient participants, said an observer.

But even a failure may also be a welcome outcome, he added, as it would help the Government to counter the allegations of ‘wind-fall gains’ to the beneficiaries of the Coalgate scam.

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