The government on Wednesday approved a methodology for the auction of coal blocks for commercial mining on revenue sharing basis and increasing the tenure of coking coal linkage.
The move would end the monopoly of state-run Coal India in commercial production of the dry fuel.
With the development, the coal mining sector has been completely opened for the private sector with no-end use restrictions for participating in coal mine auctions.
There would be free trade of coal as producer can use, sell or export coal without restriction, according to industry experts.
Coal mines will be put for auction on the basis of revenue share instead of the regime of fixed rupee/tonne.
The Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, has approved the methodology, the Coal Ministry said in a release.
"This methodology provides that bid parameter will be revenue share. The bidders would be required to bid for a percentage share of revenue payable to the Government. The floor price shall be 4 per cent of the revenue share.
"Bids would be accepted in multiples of 0.5 per cent of the revenue share till the percentage of revenue share is up to 10 per cent and thereafter bids would be accepted in multiples of 0.25 per cent of the revenue share," the release said.
The revenue sharing model is based on recommendations of an expert committee headed by former Central Vigilance Commissioner Pratyush Sinha that was formed after fourth and fifth rounds of auctions received a tepid response.
There shall be no restriction on the sale and/or utilisation of coal from the coal mine, the ministry said.
The methodology is oriented to make maximum coal available in the market at the earliest and it also enables adequate competition which will allow discovery of market prices for the blocks and faster development of coal blocks.
The successful bidder shall be required to make monthly payments which shall be determined as product of "percentage of revenue share (final bid), quantity of coal on which the statutory royalty is payable during the month and notional price or actual price whichever is higher," the government said.
The upfront amount shall be payable in four equal instalments, it said.
The upfront amount will be 0.25 per cent of the of value of geological reserve for mines up to 200 million tonnes of GR with upper ceiling of Rs 100 crore and 0.25 per cent of value of geological reserve for mines with GR greater that 200 million tonnes with upper ceiling of Rs 500 crore, it added.
The CCEA also approved commercial exploitation of the coal-bed methane (CBM) present in the mining lease area, it said.
This methodology provides incentives to the successful bidder by way of offering rebates in revenue share in events of early production of coal rom the block and the total quantity of dry-fuel consumed or sold or both for gasification or liquefaction on an yearly basis from the coal mine.
As the entire revenue from the auction/allotment of coal mines would accrue to the coal bearing States, this methodology will incentivise them with increased revenues which can be utilised for the growth and development of backward areas and their inhabitants including tribals.
States in eastern part of the country will be especially benefited.
The tenure of coking coal linkage in the non-regulated sector linkage auction has been increased up to 30 years.
Higher investment will create direct and indirect employment in coal bearing areas especially in mining sector and will have an impact on economic development of these regions, the release noted.
Disclaimer: No Business Standard Journalist was involved in creation of this content
