FIMI urges lower upfront payment for India’s commercial coal blocks

KOLKATA (miningweekly.com) - The Federation of Indian Mineral Industries (FIMI), the apex representative body of miners in the country, has sought a reduction in upfront payment at the auction of coal blocks for commercial mining.

Submitting its comments on a discussion paper on the maiden auction of blocks for commercial coal mining, FIMI maintained that upfront payment of 0.5% of the estimated value of the resource was "too high" and should be lowered to 0.25% of the value of the estimated reserves and equal to the estimated reserves for the life of the mine with the applicable price based on the National Coal Index, determined as per the grade of coal and not for the average grade of coal including uneconomical resources or deep-seated deposits, as stipulated in the proposed auction rules.

Furthermore, the industry body argued that the lower upfront payment should be paid in installments, applicable for explored, partially explored and unexplored coal blocks.

Justifying its suggestion for lower upfront payments, the representative body said that payment should be based on what can be mined as the estimated reserves might be too high as in the case of underground blocks with high geological disturbances. Very high upfront payment for such assets would lower the number of bidders at the auction.

Simultaneously, the miners have sought a decrease in the 20% of the upfront money to be paid as security, as stipulated by the auction rules, in the case of fully explored blocks. Instead FIMI has suggested that 20% of the upfront security deposit be made through bank guarantee for blocks having reserves of up to 250-million tonnes, 15% of upfront money through bank guarantee in the case of blocks having reserves of 250-million to 500-million tonnes, 10% of upfront money through bank guarantee for reserves of 500-million to one-billion tonnes and 5% of upfront money through bank guarantee in the case of reserves above one-billion tonnes.

Bid security in the case of bigger blocks would otherwise be too high and need to be capped and since the purpose of the Coal Ministry was to ensure only "serious bidders" in case the auction process failed owing to default of a bidder, a sum of $7-million as security deposit would be sufficient for the purpose, FIMI said.

Furthermore, FIMI has insisted that since the blocks were being offered for commercial sale of coal with full pricing freedom, miners should have the flexibility to adjust production levels according to varying market conditions and competition dynamics.

Citing an example, it said that if dominant players like State-run Coal India Limited or Singareni Collieries Company Limited resorted to predatory pricing owing to subdued demand in a 30-year period, say owing to renewable energy growth, then small commercial coal miners might become unviable and hence flexibility in production will help insulate such coal miners to face challenges beyond their control.

Rules stipulated now for commercial mining stated that in a year, miners would need to produce not less than 50% as per the approved mining plan, subject to the condition that over three years, successful bidders not produce less than 70% of scheduled production in any block as per approved mining plan.