Commercial coal mine auction faces valuation hiccup

Twesh Mishra New Delhi | Updated on December 27, 2019 Published on December 27, 2019

The bidding of coal mines for commercial purposes may get further delayed as issues such as base price for the auction are still undecided.

According to industry watchers, the debate is whether the Coal India notified price for certain grades of coal can be an appropriate scale to set the auction base price for these mines.

In a bid to boost production, the Centre allowed private companies to mine coal for commercial use in February 2018. The Centre had planned to begin auctioning coal mines with no end use restrictions in December 2019. But, till now there has been no progress.

In September this year, Minister for Coal, Mines and Parliamentary Affairs, Prahlad Joshi, had said, “Foreign direct investment has been approved in the coal mining sector. This will lead to more investments and technology. This will also be a big boost to address the shortcomings we have in the coal mining sector. By December or so, we are planning to offer blocks for a 100 per cent commercial coal mining.”

Till now, coal mines were auctioned with a pre-specified end-use for the coal to be mined. These auctions are based on the price per tonne of coal that the bidders would offer to States. The base price for auctions was defined based on the Coal India notified price for the particular grade of coal that dominates the geology of the mine on offer.

But industry watchers say that the Coal India notified price builds in the inefficiencies in production that the public sector undertaking is criticised for. The Centre wants to be cautious of any windfall gains that producers may end up making when these mines are auctioned.

After an inadequate response in bid rounds for end-use linked mining, the Centre decided to offer an added incentive and the winners have been allowed to sell up to 25 per cent of the total coal produced in the open market. For mines being auctioned till now, it is still mandatory to use at least 75 per cent of the total coal production for the specified end-use.

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Published on December 27, 2019
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