It provides for production-linked payment on a rupee per tonne basis

The Cabinet, on Tuesday, approved the methodology for auctioning coal blocks, providing for upfront and production-linked payments and benchmarking of coal sale prices.

Coal blocks will be put for auction after the Environment Ministry reviews them, and bidders have to agree to a minimum work programme, according to an official statement. “ The methodology provides for auctioning the fully explored coal blocks, and also provides for fast-tracking the auction by exploration of regionally explored blocks,” the statement said.

The policy will ensure greater transparency.

“The process of bidding of coal blocks will be started very soon. The government has fulfilled its commitment to bring transparency in the allocation of coal blocks,” Coal Minister Sriprakash Jaiswal told PTI.

A source said six explored blocks would be auctioned first, with estimated reserves of over 2,000 million tonnes.

The policy provides for production-linked payment on a rupee per tonne basis, plus a basic upfront payment of 10 per cent of the intrinsic value of the coal block.

Intrinsic value

The intrinsic value would be calculated on the basis of net present value (NPV) of the block arrived at through the discounted cash flow (DCF) method, the statement said.

“To benchmark the selling price of coal, the international f.o.b (freight-on-board) price from the public indices like Argus/Platts will be used by adjusting it by 15 per cent to provide for inland transport cost which would give the mine mouth price,” it said.

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 per cent discount would be provided on the intrinsic value. This would help rationalise power tariffs, the government said.

To ensure firm commitment, there will be an agreement between the Ministry and the bidder to perform minimum work programmes at all stages. There will be development stage obligations in terms of milestones to be achieved such as getting mining leases and obtaining environment/forest clearances, while the bidder will have to give performance guarantees.

Relinquishment

The policy also provides for relinquishment of a block without penalty if the bidder has carried out the minimum work programme stipulated in the agreement.

According to the statement, the Ministry of Environment and Forests will review details of coal blocks and communicate its findings before the areas are put to auction.