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The Coal Ministry proposes to link the floor price of coal blocks to be put on offer for private companies to global index.
Simply put, it will mean the floor price of a particular mine would be at 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.
This is the first time the Government is auctioning coal blocks. On offer will be four blocks with more than 2,000 million tonnes of estimated reserves. The Coal Ministry has circulated an inter-ministerial note to discuss modalities for these bids.
The issue would be taken up by the Cabinet Committee on Economic Affairs this month, a senior Coal Ministry official told Business Line .
At the same time, the Coal and Power Ministries have mooted discount on floor price for blocks bagged by power producers to facilitate electricity generation at cheaper rates. However, it is to be seen if the Finance Ministry agrees to the proposal.
“There may be different pricing for different sectors. The CCEA would decide on this,” the official said.
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 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 Central Bureau of Investigation brought to limelight that ownership of companies have 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 are not explored and the estimated reserves in them are not known.
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