India firms up payment system for coal block auction

With the auction of 16 coal blocks in India scheduled to get under way in the next month, the Indian government has firmed up methodologies for the upfront payment and reserve price for these auctions, with a view of advancing commercial coal mining in India.

The Coal Ministry had decided that mining entities owned and operated by various federal and provincial governments would be eligible to bid for the 16 coal blocks, with the freedom of merchant sales of the dry fuel to users in small- and medium-scale industries.

At this stage, it would be a partial opening up of coal mining, and private miners would be kept out of this round of bidding, a government official said.

Meanwhile, in a move to dispel uncertainty among prospective bidders over the auction methodologies and payments, the Union Cabinet has approved that the intrinsic value of the coal block would be calculated based on net present value derived from discounted cash flow, while 10% of the intrinsic value would be payable as upfront payment in three installments of 5%, 2.5% and 3.5%, a Ministry official said.

This was similar to the methodology used for the calculation of upfront payment for coal mines/blocks allotted to the government companies for specified end-uses, he said.

The reserve price equivalent to the amount of royalty on coal would be payable on a per-tonne basis to the coal-bearing provincial government, as per actual production levels achieved by successful bidders of the block, the official added.

Of the 16 blocks to be put up for auction, five were located in the central province of Madhya Pradesh, three in Telengana in southern India, two blocks each in Chhattisgarh, Jharkhand and Maharashtra and one each in Odisha and West Bengal.

This round of auction would mark the first time in 40 years that non-captive commercial coal mining would be opened up for companies other than federal government coal mining companies, the official added.

However, on the question of when and whether commercial coal mining would be opened up for domestic and foreign miners, government officials remained noncommittal.

At least two officials said that, while bringing private miners into the coal sector was “very much on the cards for the government” they were unsure whether now would be the right time to throw open the sector fully.

The officials pointed out that, with global coal prices continuing to remain soft, and the continued pressures of oversupply on the domestic market, the government was not sure of the response from private miners and their ability to commit investments in bringing greenfield blocks into production.

As a result, a calibrated opening up of the sector was considered to be prudent and the market had to wait for market conditions to turn around before the next round of the process of liberalising coal mining, the officials added.