Auction for commercial coal mining begins with investor-friendly rules

Bidders who have won coal mine under captive auction and have been convicted of an offence relating to coal allocation are disallowed to participate.
Hoping to attract a slew of investors for India’s first auction of coal mines for commercial mining and sale process, the Ministry of Coal has liberalised the terms of qualification. However, the final decision on successful bidders will need government approval.

There is effectively no strict eligibility criterion for participating in the auction. The companies/joint ventures should be registered in India. Bidders who have won coal mine under captive auction and have been convicted of an offence relating to coal allocation are disallowed to participate.

In a presentation, a coal ministry official said the mines on offer were a mix of small and large mines in order to cater to all kinds of players, especially non-mining companies. Of the total 41 mines on offer, 11 are in Madhya Pradesh, nine each in Chhattisgarh, Jharkhand, and Odisha, and three in Maharashtra. The total geological reserve of the mines is 16,979 million tonnes.

“Of the 41, seven mines have environment clearance; six have forest clearance. Land acquisition has been done in 12 mines. There are five mines in production up for auction,” said the coal ministry.

The Centre is expecting cumulative revenue of Rs 20,000 crore annually to the mine-bearing states from the auction of 41 mines.
The new methodology also provides the bid parameter to be on ‘revenue-share’ mode. The bidders will be required to bid for a percentage share of revenue payable to the state government from the production and sale of mined coal. The floor price is kept at 4 per cent of revenue share.

The price of coal extracted will be determined through the National Coal Index (NCI), which the Ministry of Coal will set up. The NCI will have a market-linked benchmark, said the coal ministry.

The auction is a two-part round — technical and financial. The nominated authority for the coal auctions — a joint secretary-level official from the Ministry of Coal — will evaluate the technical bids. Bidders will be required to submit their eligibility criteria, along with an initial offer to the nominated authority.

The financial bid round comprises two stages. The initial offer of technically qualified bidders is ranked in descending order for determination of qualified bidders. These qualified bidders are eligible to participate in the e-auction and submit their final offer. The highest bidder for a mine selected for evaluation by the government will be declared a ‘successful bidder’.

In a tender document uploaded by the Ministry of Coal for commercial coal auctions, however, mentioned the nominated authority “reserves the right (without incurring any liability whatsoever) to reject all or any of the bidders/bids without assigning any reason whatsoever”. One bid per company for a mine is allowed.

The preferred bidder who submits the highest bid in the auction could lose the mine if the government’s evaluation of the bid deems it unfit. In the past when the coal ministry awarded coal mines for captive (self) use, it cancelled bids of private companies, citing them to be too low. This led to legal tussles.

There is no restriction on the sale and consumption of coal. “The coal produced from the coal mine may be sold by the successful bidder in any manner as may be decided by the successful bidder, including sale to affiliates and related parties, utilisation of coal for any purpose, including but not limited to captive consumption, coal gasification, coal liquefaction, and export of coal,” said the tender document.

The miners will also have the freedom to explore coal-bed-methane, coal gasification, and minor minerals at the coal mining site. The Centre will also provide rebates on revenue payment in case of early production and usage of clean-coal technologies.

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