Centre goes for revenue-share model for coal auction

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Published: May 21, 2020 2:15:45 AM

If bidders raise the government’s revenue share to more than 10% in the auctions, bids would be accepted in multiples of 0.25% of the revenue share thereafter.

Sources said that the requirement of prior experience for prospective bidders for coal blocks has also been removed from the list of eligibility criteria for the bidders.Sources said that the requirement of prior experience for prospective bidders for coal blocks has also been removed from the list of eligibility criteria for the bidders.

Indicating its readiness to forego a large part of its revenue from coal mining if it results in a jump in the country’s coal production, the government on Wednesday approved a new market-determined revenue share model for auctioning off coal assets, ending the fixed fee/tonne regime that turned off private investors, even as the sector has gradually been opened up to them in recent years.

However, a coal miner in India still has to pay assorted taxes to the Central, state and local governments – including royalties, a hefty Rs 400/tonne GST compensation cess and contribution to district mineral funds – which work out to more than 50% of the base price of the fuel, much higher than in other coal-rich countries like Australia (7%), South Africa (11%) and the US (4%), analysts said.

With coal imports surging and becoming a drag on the country’s current account (imports were $24.5 billion in FY19 and $18.3 billion in April-Jan, FY20), the government has over the last more than two years taken a series of steps to populate the sector with more investors and technology players. It allowed commercial coal mining by the private sector and removed the end-use curbs for captive coal mines, virtually removing the captive/non-captive distinction. Also, 100% FDI is now allowed in the sector via the automatic route.

Finance minister Nirmala Sitharaman announced recently as part of the Atmanirbhar Bharat package that not just fully explored coal blocks, but even partially explored ones will now be auctioned off, and said that 50 assets will go under the hammer soon. Also, early production and in situ coal gasification (syngas) and liquefaction projects have now been incentivised through rebates in revenue-share. Private investors could also seek to grab Coal Bed Methane (CBM) extraction rights for even the mines owned by public-sector Coal India.

Following up on these announcements, the Cabinet on Wednesday approved a new auction methodology for coal blocks as per which the floor price bench-marked for the auctions would be 4% of the revenue share, incrementing in multiples of 0.5%. If bidders raise the government’s revenue share to more than 10% in the auctions, bids would be accepted in multiples of 0.25% of the revenue share thereafter.

Sources said that the requirement of prior experience for prospective bidders for coal blocks has also been removed from the list of eligibility criteria for the bidders. Also, the price of coal for commercial mining are said to be determined on the basis of a ‘National Coal Index’, which would include a weighted combination of monthly prices of coal in various channels of transaction. The national coal index will update the prices every two months. The upfront amount payable by the highest bidder would be 0.25% of value of geological reserve of the mines, capped at Rs 100 crore for mines with up to 200 million tonnes reserves, and Rs 500 crore with blocks with higher coal reserves.

Analysts say the new methodology might be attractive for domestic user industries which are likely to bid for coal assets more aggressively now with the removal of end-use restrictions that will allow them to sell surplus after meeting own requirements in the open market. However, while the idea may also be to bring global mining giants such as BHP Billiton, Rio Tinto and Glencore into India’s coal mining sector, these firms are seemingly withdrawing from the sector in a gradual manner and as a result don’t seem to have a keen interest in India’s coal sector at this juncture.

“The methodology is oriented to make maximum coal available in the market at the earliest and it also enables adequate competition which will allow discovery of market prices for the blocks and faster development of coal blocks. Higher investment will create direct and indirect employment in coal bearing areas especially in mining sector and will have an impact on economic development of these regions,” the government said in a statement.

Union coal minister Pralhad Joshi told FE in January: “One hundred fully explored coal blocks are ready for offering. There are other partially explored blocks as well. Six blocks, with cumulative reserves of 4 billion tonne, were cancelled recently from states and PSUs and these will also be put up for commercial auctions. Many other blocks which had been allotted to the PSUs have not been operationalised yet. We will check on their status and even those mines can be put up for auctions for sale in the open market.”

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