CCEA approves new auction methodology for coal blocks

The Cabinet Committee on Economic Affairs (CCEA) has approved the new methodology for auctioning coal blocks in order to provide upfront and production-linked payments and benchmarking of coal sale prices. The move will ensure greater transparency in auctioning the fully explored coal blocks and will also enable the government to allot coal mining licences through competitive bidding for the first time. The government will put coal blocks for auction after the environment ministry reviews and bidders approval to a minimum work programme.

It is reported that process of bidding of coal blocks will be started soon and six explored blocks with estimated reserves of over 2,000 million tonnes will be auctioned first. Under the new methodology, bidders have to provide production-linked payment on rupee per tonne basis, plus a basic upfront payment of 10 percent of the intrinsic value of the coal block. Meanwhile, intrinsic value will be calculated based on net present value (NPV) of the block arrived at through the discounted cash flow (DCF) method.

In order to benchmark the selling price of coal, the international freight-on-board (FoB) price from the public indices like Argus/Platts will be used by adjusting it with 15 percent to provide for inland transport cost. Further, the policy stated that to reduce short-term volatility in selling price, the average sale price of the past five years will be considered. To rationalise electricity tariffs, a 90 percent discount will be provided on the intrinsic value for the regulated power sector. The policy also stated that the bidders can also relinquish their blocks without penalty if they have carried out the minimum work programme stipulated in the agreement.