CCEA approves auction methodology for Coal Block Auction

September 29, 2013

Screenshot_1 Cabinet Committee on Economic Affairs (CCEA) has given approval to the policy for auction by competitive bidding of the coal blocks which aims to ensure greater transparency and will pave the way for the government to auction explored blocks.

The policy provides for:
Auctioning the fully explored coal blocks providing for upfront and production-linked payments and benchmarking of coal sale prices.
Expediting the auction by exploration of regionally explored blocks through up gradation of geological data to a reasonable level of certainty.
Production linked payment on rupee per tonne basis, plus a basic upfront payment of 10% of the intrinsic value of the coal block.
The intrinsic value of coal block will be estimated on the basis of Net Present Value (NPV) of the block arrived at through Discounted Cash Flow (DCF) method. To benchmark the selling price of coal, the international FoB (freight-on-board) price from the public indices like Argus/Platts will be used by adjusting it by 15% to provide for inland transport cost which would give the mine mouth price.
To avoid short-term volatility, the average sale price will be calculated by taking prices of the past five years. For the regulated power sector, a 90% discount will be provided on the intrinsic value. This will help to rationalise power tariffs.
Agreement between Ministry and the bidder to perform agreed minimum work programmes at all stages.
There would be development stage obligations in terms of milestones to be achieved such as getting mining lease, obtaining environment/forest clearances etc.
The bidder will have to give performance guarantee during the developmental stage. The successful bidder will get 2 years for exploration (for regionally upgraded blocks) and 5 years for development of coal blocks.
Relinquishment of the block without penalty provided, the bidder has carried out minimum work programme stipulated in the agreement.
The details of the coal blocks will be reviewed by the Ministry of Environment and Forest and communicate its findings before the blocks are put to auction. However, final approval will be subject to the statutory clearances under the law.