Access to open market revives interest in captive blocks
After a long gap of four years and amid rising coal imports, the Centre on Thursday allocated five captive coal mines to private companies. The respective state governments will fetch a total of Rs 17,136 crore over 30 years as revenue to be shared by the successful bidders (see chart). Since late 2015, the government had cancelled three auctions due to lack of investor interest. In early 2015, as many as 31 blocks were allocated through competitive bidding.
The latest round of auctions is the first since the Cabinet, in February 2019, allowed private companies to sell up to 25% of production from captive coal mines in the open market. Interest was shown for six blocks against the 27 mines put up for bidding by the coal ministry. An earlier Cabinet approval (February 2018) allowing commercial mining by the private sector had failed to lure investors.
Among the five allocated blocks, the Jamkhani mine is the most popular. Vedanta won this with the highest bid of Rs 1,674 per tonne against the reserve price of Rs 1,002 per tonne. The Union coal ministry has not yet approved the allocation Gare Palma IV/1 block which too was auctioned in the latest round. Jindal Steel and Power had quoted the highest bid of Rs 230 per tonne for the block against the reserve price of Rs 150 per tonne.
“This (the allocations) will boost the coal production in the country and reduce the dependence of industries on imported coal,” the Union coal ministry said in a statement. Captive coal blocks reallocated since 2015 increased their production by 33% year-on-year (y-o-y) to 12.9 million tonne (MT) in the April-September period this fiscal.
Though captive mines recorded 55% y-o-y rise in production in FY19 at 25.1 MT, it was still much lower than the peak output of 43.2 MT in FY15, when 42 such blocks were operational.The Supreme Court had cancelled the licences of 204 captive blocks in 2014, saying that these had been allocated in an illegal and arbitrary manner. Including five under latest auctions, as many as 84 of these coal mines have since been reallocated, of which 29 are operational at present.
The main reasons why reallocated blocks are yet to commence production include delays in receiving forest clearances, mining-safety permissions, land acquisition and ongoing litigation. Local agitations, lack of adequate transportation infrastructure and contractual conflicts with mining contractors have also restricted output in a lot of operational mines. Besides, some of the developers, who won the blocks in auction, are in financial distress.
Apart from the quoted price, the state government would get around 14% royalty for coal mined.
On top of that, Rs 400 per tonne would go to the GST compensation fund and another Rs 30 per tonne would go towards environmental cost and forest cess. States have earned a total revenue of Rs 4,975.7 crore since FY15 till October 2019 from the captive coal blocks. The government had earlier claimed that coal-bearing states will get revenue to the tune of Rs 3.5 lakh crore over 30 years (about Rs 11,467 crore annually) from the 31 auctioned mines and 42 blocks allotted to Central or state government companies.