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Power Ministry wants 90% off coal price

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SummaryThe demand comes as the Coal Ministry gears up to auction about 54 blocks

In a move that could trigger a fresh controversy over the valuation of natural resources, the Power Ministry has sought that the reserve price of coal blocks to be offered through the competitive bidding route be set at 90 per cent discount on the intrinsic value of the mine.

The demand comes as the Coal Ministry gears up to auction about 54 blocks following the controversy over “notional losses” because of blocks being offered without auctions during 2004-09.

In its discussions with CRISIL, appointed by the Coal Ministry to work out the financial parameters of the bidding process, the Power Ministry has sought that the reserve price be set at 10 per cent of the value of the coal.

Power Ministry officials said the reserve price will directly impact power tariffs. “A high reserve price will increase tariffs and therefore in larger national interest, the reserve price should be minimal. A nominal figure of 10 per cent of the intrinsic value may be kept as reserve price,” the officials were quoted as telling CRISIL.

On the fuel price to be used to compute the intrinsic value of the block, the Power Ministry suggested that Coal India Ltd’s price be the benchmark. But the Planning Commission has said the domestic price of fuel in coal-producing countries should be used. CRISIL, it is learnt, has told the Coal Ministry that the ‘mine mouth prices’ in these countries should be used.

Experts said that although the Power Ministry’s suggestion to peg the reserve price at 10 per cent may seem loaded in favour of bidders, even after winning a bid, a developer is unlikely to get returns in the short term.

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