Central public sector undertakings that are set to be allocated new coal blocks under a special dispensation outside the bidding route will be allowed to sell 10% of the fuel in the open market through the highly profitable e-auction route. This will help these companies bolster their bottom lines in two ways ? higher margins and reduced costs.
According to government sources, companies such as NTPC, NMDC and SAIL will be among the beneficiaries of the move. These firms, experiencing pressure on their business volumes and margins due to the economic slowdown, would find e-auction of surplus coal an alternative revenue model promising assured profits. India’s monolithic coal producer Coal India (CIL), which is currently allowed to sell 10% of its produce through e-auction, has found this route highly lucrative with roughly 20% of its revenue already coming from this business.
For coal users like power and steel companies, the new coal blocks will reduce their costs significantly, the sources said.
The coal ministry is currently finalising the rules and regulations for competitive bidding and also those for the special dispensation for government companies (central and state PSUs) where these firms are allocated blocks outside the bidding route but after a reserve price is set.
E-auctioned coal fetched 85% higher prices for CIL than those offered to customers under the notified prices determined by state-owned coal companies and the government. Since 2007-08, CIL has seen the contribution of e-auction to its overall revenue rise sharply, despite the 10% cap.
If other government companies manage e-auction of just 5 million tonnes of coal annually, their revenues would jump by about Rs 1,000-1200 crore annually, analysts said.
Under the government dispensation route, the coal ministry can allot mines to state and central government companies and public sector enterprises for commercial coal mining. This means that these entities could utilise their captive coal block allocations either for their own use or sell coal on the lines of CIL to consumers.
?This is a good development that can help in de-risking our business. It will give us alternative revenue stream that will be important at times like these when demand in the market is low and prices are flat,? said an official of a public sector steel company, asking not to be named.
An NTPC official said that the new policy could come handy when production from their mines peaks and surplus is available for sale to outside consumers. NTPC over the past seven years has been awarded a total of eight coal blocks that have reserves of over 5 billion tonnes. While most of the coal from these blocks would be used for NTPC?s own use, it would reserve the right to sell it to other consumers. But its past record of going slow on already allocated mines could hamper the plan.
As per the guidelines for allocation of coal blocks under the government dispensation route, the coal ministry would identify blocks to be offered under this route and fix a reserve price for a block. This would then be offered to government entities having the best mining plan and a good track record on payment of the reserve price. The allocatee company will have the right to mine and sell coal from the block to approved end users under a linkage formula similar to the one being followed by CIL. It would also notify coal prices from time to time. The company may sell 90% of the production under the said route and could e-auction the balance 10%. If the allocatee company appoints a mine developer and operator (MDO) for coal block development, its selection should also be through competitive bidding process.
The government has so far allocated close to 200 captive mines to various end-use companies with total reserves of over 45 billion tonnes.
