Re-allocation of 74 coal blocks to begin Feb 11

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New Delhi | Published: November 20, 2014 4:29:23 AM

Among the 204 captive coal blocks cancelled by the Supreme Court, re-allocation of the first lot of 74 will be complete by March 15 next year.

Among the 204 captive coal blocks cancelled by the Supreme Court, re-allocation of the first lot of 74 will be complete by March 15 next year, coal secretary Anil Swarup said on Wednesday. A clutch blocks to be identified among the 74 will be made available to the companies with specified end-use plants like power, steel and cement, including those in the private sector, through an e-auction process that will commence on February 11. The remaining will be allotted to the central and state PSUs sans auction, the official added.

He said the number of blocks a company can bid for will be capped to avoid creation of monopolies, adding that the auction methodology would ensure that power tariffs don’t rise due to the re-allocation process. End-users, he said, could get coal blocks consistent with their needs and not more.

The companies that currently hold the coal blocks being re-allocated will also be eligible to vie for the blocks but they will have to undertake to pay the court-imposed penalties (additional levy).

For coal mined prior to the SC order, that is up to September 24, the additional levy will have to be paid by December 31, 2014, and for the coal extracted from September 24 to March 31, 2015 (when the cancellation will take effect), the levy will have to be paid by June 30, 2015.”We are yet to arrive at a final decision on the valuation methodology for the auction but the aim will be to ensure that power tariffs do not increase,” Swarup said in a press conference. He said revenue maximisation was not an objective of the auction.

FE had reported earlier that the the valuation for the coal mines is likely to be different for deregulated sectors — steel, sponge iron and cement — and regulated sectors like power projects awarded through case 1 bidding.

The mines classified under Schedule II (42 operational mines) in the Ordinance issued by president will be available for those end-users who have made an expenditure of 80% of the total project cost. For Schedule III mines (32 near-operational mines), only the end-users who have made investment of 60% of the total project cost can bid for the coal blocks. “Apart from the 74 blocks, we may also include a few blocks from schedule I (204 cancelled blocks) depending on the preparedness of a coal block,” Swarup said.

As per the draft rules, the e-auction of coal blocks will involve a two-stage tender process of technical and financial bids. The details regarding valuation and mines available for auction will be finalised before December 22, the likely date for issuing the request for proposal (RFP).

Although the companies that currently hold the coal blocks being re-allocated won’t have the right of first refusal (ROFR), the process will involve a lot of operational leeway for them to offset the absence of the ROFR. The winners of the 74 blocks will be allowed to swap the coal produced from the blocks among themselves, provided their end-uses are the same. Also, firms with multiple end-use plants in the same category, for instance, a company with two power plants in two different locations, can divert coal to the plant not associated with the block. Such diversion for a different end use will not be permitted.

Sources told FE companies that would now get the captive coal blocks by bidding for them 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, the sources added. The state-sector companies and case 2 power projects that will be allocated the blocks will have to pay reserve prices for the respective blocks to be determined.

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