Bidding process is likely to take place just before the commencement of the Budget session in February 2015
Government has set the stage for commencing e-auction of 74 coal mines and is said to have finalised three models for fixing the floor price of the reserves based on which the bidding will be done.
According to sources privy to the development, the bidding process is likely to take place just before the commencement of the Budget session in February 2015. The Coal Ministry is learnt to have fixed the methodology for deciding the floor price of the blocks to be e-auctioned, based on three categories of end-users.
The intrinsic value of the blocks which are to be given away to unregulated sectors like steel, cement and captive power, will be calculated either as per the international benchmark prices of coal or by taking the average of imported coal prices for the last three years. Either of the two methods are likely to be finalised soon, sources said, as the inter-ministerial panel headed by Additional Secretary in the Coal Ministry AK Dubey, is giving finishing touches to them. The panel consists of representatives from related ministries like Power, Steel, Mines, law and Finance.
For fixing the floor price of coal blocks which are to be given to State-owned companies (GENCOS) or for power projects which are to be set up on tariff-based bidding, the Government is said to have considered taking into account the notified price fixed by Coal India ltd (CIl) of domestic coal. In other words, the intrinsic value of the blocks to be given out to aforementioned category of end-users, will be calculated on price of coal notified by CIl.
Thirdly, the floor price of blocks which are to be auctioned for projects running on power purchase agreements (PPAs) based on cost plus mechanism, will not be more than the actual fuel cost as allowed by power regulator subject to a maximum of CIl notified price.
Simply put, in order to ensure that benefit of coal is passed on to the consumers, the intrinsic value of the blocks to be given to power projects based on cost-plus PPAs, will not exceed the actual fuel cost (expenses of generating power through projects based on cost-plus PPAs) notified by the power regulator, which in turn will be based on CIl notified price of coal.
According to the cost-plus based PPAs, the power generator charges the customer an amount which is more than the cost incurred by him for generating electricity. However, in the power sector, the regulator ensures that this cost is not opaque. So, the regulator will ensure that the value of blocks to be auctioned for this category of end-users (projects based on cost plus PPAs), will be based on the fact that the fuel cost is at par with the price of coal (used in the aforementioned category of power projects) as notified by CIl, and not more than that.
Sources said that the methodologies have been worked out while keeping in mind the fact that after the Supreme Court cancelled 214 coal blocks out of the 218 given away by the Government between 1993 and 2009, several power plants which were linked to these reserves, have been left stranded. Many of these were running on either PPAs based on tariff-bid system or cost plus system (where tariff is fixed by the power regulator). Therefore the three methods are likely to benefit all such end-users, they added.