The companies that would be able to grab captive coal blocks — from among the 74 that are to be auctioned off shortly — will have to pay 10% of the respective blocks’ “intrinsic value”, or floor price, immediately after they win the bids. The successful bidder will then pay the intrinsic value minus the upfront payment in annualised instalments on a R/tonne basis, according to sources.
The intrinsic value of each block will be determined by the government by computing its net present value (NPV) based on discounted cash flow approach and any discount over and above this will be adjusted in the NPV itself.
The NPV determination will be specific to the end-use, the sources said. If the end-use is deregulated, such as in the case of captive power plants, steel, sponge iron and cement units, then the floor price will be the Indonesian and Australian pit-head prices (which would be found by deducting 15% as normative land transportation costs from the respective FOB prices).
In the case of case-I power plants, which are in the regulated end-use category, the NPV will be decided by using the Coal India’s notified price for the same gross calorific value bands. These units, if they win the auction, will also have to pay 10% of the floor price upfront and then make annualised payments to exhaust the NPV.
However, sources said, in the case of case-I plants that have signed cost-plus power purchase agreements (PPAs), the regulator will allow as “fuel cost” the actual fuel cost (including the bid amount) as pass-through so long as it remains below the respective CIL price. As regards the case -I plants with tariff-based PPAs, the regulator will have to the power to revise tariffs downward if the actual fuel costs (inclusive of bid amount) is lower than CIL notified prices. For such tariff revisions, the regulator can invoke the “change in law” clause in the PPAs. Of course, an upward tariff revision can’t be done.
In case of power plants being set up base on tariff-based (case-II) competitive bidding,the blocks will be given on a nomination basis (sans auction) and a fixed reserve price will be payable. In this case, the NPVs will be calculated the same way as for case-I plants. Ultra mega power projects and power plants of central and state utilities fall in this category.