The coal ministry will allocate 8.5 billion tonne (BT) reserves to government companies without their reserve price worked out, thanks to dismal performance by the state-owned coal exploration company.
Government companies are exempt from bidding under the new guidelines but the absence of even a reserve price has led to uncertainty on future cash flow accruing from the blocks. With the 30 January deadline approaching, not a single company has submitted application for block allocation so far.
The government’s original plan was to identify blocks for allocation, calculate their reserve price, invite applications from companies and then select one among the applicants based on a set of criteria including financial strength and past track record.
“The pace of exploration by Central Mine Planning and Design Institute Ltd (CMPDI) has been very slow. So, it has been decided that the selected companies will be asked to pay a token amount, similar to bank guarantee, and give an undertaking that the reserve price will be paid later after the exploration is done,” a senior coal ministry official said.
The government wants to allocate a total of 54 coal blocks to public and private sector companies under the Auction by Competitive Bidding of Coal Mines Rules notified in February 2012. Government owned companies and private firms setting up power projects won on tariff-based bidding for supply have been exempted from bidding. In the first phase of allocation, the coal ministry has invited applications from government companies for allocation of 17 blocks.
However, not a single of the 17 blocks on offer currently is explored.
Interestingly, the coal ministry’s plan is to ask the selected companies to carry out exploration themselves. After this, the government would calculate the reserve price to be paid by these companies by linking it either to global coal prices or using Coal India prices as benchmarks. The calculation of the reserve price would be based on the estimate of reserves made in the Geological Reports (GRs) after exploration.
Asked whether the companies possess the technical wherewithal to carry out exploration themselves, particularly because the applicant companies include state-level industrial development corporations, the official said, “There is no other choice. If we leave it to CMPDI, the exploration would take many years.” Another problem with the government’s plan is that the mechanism goes against the recommendation of CRISIL, the private consultant appointed to suggest the methodology for fixation of reserve price and floor price for bidding.
CRISIL had recommended that, as far as possible, the government should refrain from allocating unexplored blocks.
The 17 blocks currently on offer include 14 acreages earmarked for companies setting end-use plants in the power and steel sectors and 3 blocks earmarked for allocation to mining companies. The companies have been asked to submit their applications by 30 January.
The current coal allocation drive comes nine months after gross irregularities in coal allocation surfaced creating a nationwide stir. The Comptroller and Auditor general of India (CAG) had observed that the government may have extended undue benefits worth Rs 1.86 lakh crore to private companies by not resorting to bidding. The government had later reviewed earlier allocations and cancelling those where undue delays were found. It had also promised adopting a fair and transparent process for future allocations.
