CCEA approved the Methodology for Coal Block Auction

Cabinet Committee on Economic Affairs (CCEA) on 24 September 2013 approved the methodology for auction by competitive bidding of the coal blocks. The methodology provides for auctioning the fully explored coal blocks and also provides for fast tracking the auction by exploration of regionally explored blocks through up gradation of geological data to a reasonable level of certainty.

The methodology approved by the Government provides for production linked payment on rupee per tonne basis, plus a basic upfront payment of 10% of the intrinsic value of the coal block. The intrinsic value of coal block will be calculated on the basis of Net Present Value (NPV) of the block arrived at through Discounted Cash Flow (DCF) method. To benchmark the selling price of coal, the international FoB price from the public indices like Argus/Platts will be used by adjusting it by 15% to provide for inland transport cost which would give the mine mouth price. In order to avoid short term volatility the average sale price will be calculated by taking prices during the last 5 years. For the regulated power sector, it has been decided to provide for 90% discount on the intrinsic value for tariff based bidding. This methodology will help in rationalizing the power tariff.
In order to ensure firm commitment, there would be an agreement between Ministry and the bidder to perform agreed minimum work programmes at all stages. There would be development stage obligations in terms of milestones to be achieved such as getting mining lease, obtaining environment/forest clearances etc. The bidder will have to give performance guarantee during the developmental stage. The successful bidder will get 2 years for exploration (for regionally upgraded blocks) and 5 years for development of coal blocks.

The new policy also provides for relinquishment of the block without penalty provided, the bidder has carried out minimum work programme stipulated in the agreement.

Ministry of Environment and Forest will review the details of the coal blocks and communicate its findings before the blocks are put to auction. However, final approval will be subject to the statutory clearances under the law.

Exploration activities in identified coal blocks are at advanced stage and are likely to be completed shortly. Thereafter these blocks would be put to auction under the Competitive Bidding of the Coal Mines Rules, 2012, which were notified on2 February 2012.