Move to keep check on power tariffs

In a bid to keep electricity rates under check, Government would offer discount on the floor price of coal blocks to be allocated to power producers.

The floor price is the upfront payment that an owner of the coal block has to deposit with the State where the mine is located. The Government proposes to hold Case-II bidding, wherein every power project would be accompanied by a captive coal mine for sourcing fuel.

“Power firms will definitely get some discount. It has been decided to give a discount to power sector companies as otherwise the auction will result in higher tariffs (electricity),” Coal Secretary S.K. Srivastava told Business Line.

The Secretary said that his Ministry is discussing with States about the quantum of discount to be offered. “All proceeds will go to the State Government. We will have to see the impact on States’ revenue,” he explained.

The idea was initially mooted by Crisil Infrastructure Advisory, which was engaged by the Coal Ministry to come up with a methodology for calculating floor price of coal blocks to be offered for mining.


Srivastava said that the Government was planning to put out more number of explored blocks for auctioning.

Out of the 54 coal blocks lined up for allocation, just 12 are explored. This means feasibility study of the mine has been done and expected mineable reserve, capital and operating cost and production rate are known. The explored blocks would generate more revenues and would attract more takers.

The Secretary did not comment on when the blocks would go for auction.

Currently, blocks are classified into three categories: commercial mining (for steel, cement, sponge iron and others); power sector and Government dispensation.


Srivastava said that Government companies may be allowed to explore the blocks first and then pay the reserve price.

The Government is finding it difficult to determine the price of unexplored blocks. Crisil in its report said that it is not suitable to develop a normative framework for valuing mines where detailed exploration data are not available. This can lead to erroneous results.

The consultant has also said that the Government may proceed with the auction of only the explored blocks. This auction will provide benchmarks that can be used for comparing with blocks that have limited or no data.

(This article was published on November 15, 2012)
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