Competitive bidding likely for coal blocks

The archaic process of awarding coal blocks on a first-come-first-serve basis may soon be replaced by a more efficient and transparent competitive bidding process.

"The legislative amendment for that is likely to be brought in the current Budget session itself," a senior government official said.

Coal blocks are awarded to power, steel and cement companies for captive mining.

A Cabinet note has already been forwarded to all stakeholders to get their feedback on the proposed amendment to the Mines and Minerals Development and Regulation (MMDR) Act of 1957, which will allow the government to auction coal blocks for captive mining through competitive bidding.

Once the Cabinet clears the proposal, competitive bidding would start in three-four months.

The move is based on the decision taken by the Prime Minister's special Energy Coordination Committee (ECC) in 2005. The current system of allotting coal blocks for captive mining, done by a screening committee, is subjective in nature.

The bidding process would involve an upfront payment based on the value of the reserves and other statutory mining taxes. The industry has welcomed this move saying that it would bring "transparency and efficiency" in the entire process.

"In the current system, there are 40 companies applying for one block. With no objective criteria for allotment, there is scope for a lot of mischief," according to a senior official at a leading cement company.

According to N Nagarajan of CRISIL Research and Information Services, it is definitely a positive step because more efficient players would be able to come forward and bid for coal blocks. This move is likely to add to the coal costs of the user companies.

The all-India coal demand today is 365 million tonnes of which the requirement for captive power is 33 million tonnes. The availability stands at 334 million tonnes and there is a shortfall of 31 million tonnes.