Demand falters amidst coronavirus, industry seeks timeline extension for commercial coal auctions

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Updated: Jul 15, 2020 8:13 AM

The government on June 18 had launched the maiden auction for coal blocks without any end-use restrictions, and the bidding is scheduled to take place on August 18.

Due to muted power demand, state-run Coal India produced 602.2 MT in FY20, down 0.8% y-o-y.Due to muted power demand, state-run Coal India produced 602.2 MT in FY20, down 0.8% y-o-y.

Amid low demand of coal in the current economic environment, potential investors have requested the Union government to delay the commercial coal auctions by three months.

In letters sent to the Union coal ministry regarding the upcoming auction, industry players have pointed that more time is needed for “identifying reliable coal customer to purchase coal” and “assess the grade of coal” for the companies to take informed decision.

The government on June 18 had launched the maiden auction for coal blocks without any end-use restrictions, and the bidding is scheduled to take place on August 18.

The development comes at a time with all India coal production inching up 0.05% in FY20, the lowest growth rate in at least 20 years, to 729.1 MT as electricity demand grew 1.3% in the fiscal. The share of renewable energy is gradually increasing in power generation raising questions about the future of coal, although the latter currently contributes more than 70% of electricity production. Due to muted power demand, state-run Coal India produced 602.2 MT in FY20, down 0.8% y-o-y.

Responding to the industry’s query on whether the government will provide railway connectivity to mines, the coal ministry clarified that “the evacuation infrastructure shall be the responsibility of the successful bidder”. But the ministry said “the government is taking many initiatives to augment coal evacuation infrastructure, including new railway lines”.

This would also be the first set of coal assets to be auctioned off through the new market-determined revenue share model that replaced the fixed fee/tonne regime that turned off private investors. Also, as approved by the Cabinet in January, unexplored coal blocks have been put up for auctions for the first time, which is seen to add certainty of tenure from the prospecting to the production stages.

Though the norms for upfront payments have been eased for these auctions, the industry has requested the government to consider the removal of upfront amount to lower the financial burden of the bidders as “both upfront amount and performance security are huge amounts running into crores of rupees”.

Union coal minister Pralhad Joshi had said earlier “miners can get back their upfront payments through adjustments in the premium they will have to pay to the government over 4-5 years”.

Most of the mines earmarked for commercial auctions are located in Madhya Pradesh (11), followed by Chhattisgarh (9), Jharkhand (9), Odisha (9) and Maharashtra (3). However, responding to Maharashtra’s objection, the Centre has decided to not put up the Bander mine for commercial coal auctions. Also, it is also considering to replace four mines with 20 million tonnes per annum capacity in Chhattisgarh at the state government’s request.

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