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Inter-ministerial Panel finalizes reserve price for coal e-auction; to seek cabinet approval

12 Nov 2014 Evaluate

Marking the first steps towards coal block re-allocation, an inter-ministerial panel in its meeting decided the methodology for fixing the reserve price for coal e-auction and now is planning to seek Cabinet approval for the same. Since the government would be auctioning 74 blocks in Phase I,  it is the coal ministry, which will now suggest the method of calculating the reserve and floor price of coal in the 74 cancelled coal blocks, which will go under the hammer through e-auction next month.

The price, which is expected to be announced within a fortnight, will be determined on the basis of the current value of the asset on offer, the international mine head price, and the three-year average of imported coal price. While a component for deriving the reserve price will be based on asset valuation, it will also factor in the gross calorific value (GCV) of coal for computing the net value to avoid any adverse impact on power tariffs.

The committee, comprising secretaries of ministries of finance, power, steel, law, mines, petroleum, industrial policy and promotion and coal, scheduled a meeting on Tuesday to deliberate upon the auction start price or the reserve price for allotting coal blocks, whose allocation was cancelled by the Supreme Court recently. This development came after Supreme Court (SC) on September 24 had cancelled allocation of 204 coal blocks to various companies between 1993 and 2009. Out of these, 37 were running coal mines and another five were ready to produce by April, 2015.

Re-allocation of these cancelled blocks were planned since there were many existing power plants, which were linked to these mines, or power plants, which have no tie-up for coal and would either have cost-plus power purchase agreements or would have contracted agreements to sell electricity on the basis of bid tariff. Nevertheless, the government sensed the need to revise the methodology decided by the IMC previously.

The government had in 2012 constituted an IMC to consider and examine the formulation of methodology for fixing floor/reserve price of coal blocks to be allocated through auction. However, based on recommendations of consultant Crisil, it proposed allotting coal blocks only to government companies or to power plants with tariff-based bidding, to ensure that the benefit of cheaper domestic coal is passed on to consumers.

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