The coal block auction has taken the Centre by surprise and it is redoing the sums. Cash registers are set to ring for the mine-owning States as, after just four days of auction, they are set to get ₹52,610 crore from the bid amounts for the 11 blocks sold. Add to that the royalty payments of around ₹7,500 crore, and it becomes a tidy sum.

“Going by the current trend, we expect the numbers to multiply several times by the time all the 21 blocks are sold,” said a senior Coal Ministry official, who did not want to be identified. The Coal Ministry has been auctioning two-three blocks daily starting February 14.

According to government estimates, from the entire 204 blocks to be allocated/auctioned in phases, over ₹15-lakh crore was expected to be garnered over the lifetime of the mines. “But now we see this number could be higher,” the official added.

These figures do not include the implication of the electricity tariff reduction value for the blocks marked for power sector.

Developed mines

One of the reasons that these blocks are attracting such high bids is that all are producing mines with developed infrastructure. “The buyer is just paying for the bid,” another official said.

Coal Ministry officials agree that not all the mines will last for 30 years. But this has not proved to be a deterrent.

“Leaving the two blocks that are being auctioned on Wednesday, there are six more to go. Already, the revenue accrual to the States is ₹59,000 crore for 11 blocks. We are looking at 204 blocks. We are also aware that the 21 ready-to-produce blocks that will go under the hammer from February 25 may not see such high bids,” the official said.

The price will go down because the blocks are yet to show results, and with the first round of auctions/allocations, the demand for the fuel will keep reducing.

Reverse bidding

As regards the concept of reverse bids being used for seven of the 21 blocks for the power sector, the official said that this is to ensure that the auctions do not lead to increase in tariffs for consumers.

“The bidder has to bid below the ceiling price of the coal that is factored in the existing tariff. As the bids continue to fall, the tariffs too keep getting adjusted accordingly,” he added.

The other reason for introducing reverse bidding is that value of coal is shared between the host state and the state where the power plant is.

Dismissing that this will distort the electricity tariff mechanism, the official said, “Every ₹100 decrease from the bid should bring down tariff by six paise a unit.

“This needs to be enforced by the State Electricity Regulatory Commissions…if they sleep then we can’t help.”

For the unregulated sector, had the Centre not adopted Coal India’s price as the base, then the only alternative was to benchmark it to the imported price. 

On whether it would have been better for the Government to allow commercial mining straight away, the official said it was “easy to say that we did not take this opportunity to open up the sector, but we were conscious of the fact that Indian industry does need coal.”

Day five of the auction saw Gare Palma IV/5 in Chhattisgarh and Tokisud North in Jharkhand being offered. Essar Power won the Tokisud North block (reserved for power sector) with a bid of ₹1,110 a tonne.