Coal mines to invite price-based bidding soon

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New Delhi, Sep 3 : In a major public-private partnership initiative, the government is considering development of coal mines through price-based bidding as was done in case of ultra mega power projects.

A proposal to this effect has been made by the power ministry and is under consideration of the coal ministry. It has been suggested that coal blocks can be bid out by inviting competitive bids for arriving at the lowest price per tonne of coal. The bidding could be undertaken by a special purpose vehicle (SPV) under Coal India Ltd (CIL).

The coal so produced would be supplied and sold directly to power projects identified by the ministry of coal through agreements between the procurers and the coal mining entities.

In case, it is felt that there is a legal hurdle in executing contracts of this nature directly, then CIL could enter into contracts with the mining entities to purchase all the coal at the competitively bid rates and transfer it, through the existing mechanism for providing coal linkages to identified power projects through back to back agreements.

Besides carrying out the bidding process, it is proposed that CIL can also handle the task of carrying out preliminary groundwork including assessment of geological reserves and obtaining environmental clearances.

Officials said such a transparent approach would encourage private sector participants to invest in coal mining. Moreover, independent mining companies will bring in relevant expertise and desired technological upgradation leading to more comprehensive, efficient and quicker mining of available coal. It has been proposed that economies of scale could be enabled by clubbing more than one power project vis-à-vis such mining company.

Availability of coal is critical to the growth of the power sector and the country’s economy. As of now, the estimated shortfall vis-à-vis the expected requirement is of the order of 66 million tonne at the end of the 11th Plan after taking into account the production plan of CIL as well as the likely production from the captive coal blocks allocated to various utilities for existing projects and for new projects of the11th Plan.

Currently, except for coal mines allotted to ultra mega power projects, where competitive bidding process ensures the competitiveness of the cost of coal mining, almost all other allocations of coal blocks are through an inter-ministerial screening committee. The award of coal blocks by the committee, however, does not include any assurance on optimal cost of coal mining.

According to the power ministry, these shortcomings can be overcome if coal blocks could be developed through independent mining companies through a transparent, competitive bidding process of arriving at a lowest price per tonne of coal, to be specifically used for power generation. Officials said under the Mines and Minerals Development Act, 1957, the government is already empowered to prescribe and administer such a process under sections 11(3) (e) and 11(4) of the Act.