Govt to consider coal block auction policy on Tuesday

The Prime Minister Manmohan Singh headed Cabinet Committee on Economic Affairs (CCEA) is likely to consider the coal block auction policy for private companies on Tuesday.

For the first time in the country, this policy would facilitate the auction of coal blocks for private companies in the steel, cement and power sectors. Coal mines were never auctioned in the country earlier.

If the CCEA gives the policy its go-ahead, the Government may auction about four coal blocks with nearly 2,000 million tonnes of estimated reserves in two months, a Senior Coal Ministry official told Business Line.

The CCEA would discuss a few crucial issues about the coal auctioning policy including giving power companies discounts, pricing of blocks and issue of comfort letter for environment and forest clearances, he added.

The Coal Ministry is fast forwarding exploration of coal blocks to determine reserves so that more mines can be put out on auction. “It is difficult to auction un-explored blocks. Generally, exploration of each block takes at least two years,” the official said.

The Coal Ministry undertook extensive consultations and ground work before putting the draft policy together amid the uproar on the alleged coal block allocation scam.

The Government allocates coal mines under three routes. First, through auction to private companies; second, to Government-owned companies by dispensation; and third to power companies on tariff-based bidding.

The new coal auction policy would be applicable to the first and third categories of allocation routes, the official said.

Meanwhile, the Ministry of Environment and Forests has categorically said Government should not put out blocks that are situated in ‘in-violate’ areas. The environment and forest clearances for such blocks would not be accorded.

In-violate areas are ecologically sensitive zones covered by dense forests, wildlife or bird sanctuaries, elephant corridors, and water bodies, among others.

The Coal Ministry proposes to link the floor price of coal blocks to be put on offer for private companies to the global index.

Simply put, it will mean the floor price of a particular mine would be at a 10-15 per cent discount of the freight-on-board (FoB) price of imported coal of the same quality. The FoB price may be taken as average of coal procured from Indonesia, Australia and South Africa, the three countries from where India imports the fuel.

In addition, the blocks would be offered on a revenue sharing model. This would mean that the miner would have to share a percentage of revenue generated from selling coal with the State Government.

The revenue shared would be linked to the wholesale price index (WPI) and would rise with incremental production.

The Government is also taking preventive measures by putting a clause that no mine owner would be allowed to sell the block or dilute equity till production commences. Moreover, any change in ownership of the company that owns a block has to be approved by the Coal Ministry.

The Ministry is cautious of awarding blocks to non-serious players. The investigations in the alleged coal allocation scam by the Central Bureau of Investigation brought to the limelight the fact that ownership of companies had changed soon after mines were allocated by the Government.

On July 3, the Government allocated 14 blocks with geological reserves of 8,311 million tonnes to cater to about 31,800 MW power generation capacity. These mines were given to public sector power companies based on application procedure and not bidding.

The companies were not charged reserve price for the 14 blocks because the mines were not explored and the estimated reserves in them were not known.

>siddhartha.s@thehindu.co.in

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