New Delhi: The coal ministry is considering a move to first assess deposits at 54 blocks earmarked for auction, which could delay the government’s ambitious plan to boost coal output and worsen the power crisis in the country.
“Most of the blocks have not been explored. For some of the blocks, the information is sketchy. We are looking at the possibility of CMPDI (Central Mine Planning and Design Institute Ltd, a unit of state-run Coal India Ltd) exploring them,” said an official close to the auction-drafting process, not wanting to be named.
Exploration is aimed at arriving at an estimation of the quantity, location and quality of the deposits, and is normally done by drilling into the earth and studying samples, a process that takes two-three years. In the best-case scenario, CMPDI could outsource a part of the job and deploy more people to shorten the time to one-two years.
A second official said the matter was under discussion within the coal ministry and a decision will be taken this week after consulting the power ministry. Both coal ministry officials didn’t want to be named.
Coal minister Sriprakash Jaiswal has said several times in the last year-and-a-half that the process for coal block auctions via competitive bidding was being formulated and may be conducted this year.
Jaiswal had said this would replace the earlier system of allocations of blocks and bring in greater transparency.
The coal ministry may decide to explore 54 coal blocks before auctioning them. Mint’s Ruchira Singh says the potential move could give bidders confidence, but will worry consumers like power companies
The plan has been hailed as a prospective revenue earner for a government struggling to rein in the fiscal deficit much along the lines of telecom spectrum, and oil and natural gas block auctions. Several companies have said they were planning to bid for the blocks.
Getting the blocks explored will help the bidders know what they are bidding for and the valuations could be more accurate, said analysts and an industrialist. But the delays in boosting coal output could harm economic growth, they said.
“Without exploration, nobody would have bid and the price would have tended to be low,” said Rakesh Arora, managing director and head of research at brokerage firm Macquarie Capital Securities (India) Pvt. Ltd. “But quite obviously, the delay would hurt the Indian economy.”
Arora said it was good for the prospective bidders to have the government explore the blocks as they would have had to explore them anyway.
“Getting the blocks explored first is the more sensible thing to do. The bidders can make a meaningful bid and the government will also rest assured it has not underpriced its reserve,” said Sandeep Jajodia, chairman of the national council on coal at industry lobby group Associated Chambers of Commerce and Industry of India.
The government would need to take several interim measures to boost coal availability to offset the delay, said Jajodia, also chairman and managing director of Monnet Ispat and Energy Ltd, a power producer and prospective bidder for the coal blocks.
India’s power generation capacity of 199,877.03 megawatts (MW) is inadequate to meet growing demand from companies, offices and homes. Peak-hour shortage—between 5pm and 11pm—stands at 12%.
The lack of coal availability will worsen India’s already-poor track record in building power-generating capacity. In the five years to 2007, the country added 20,950MW of capacity, against a target of 41,110MW.
One of the officials cited above said the idea of getting the blocks explored before auctioning them was gaining ground in the wake of the Comptroller and Auditor General of India (CAG) draft reports leaked to the media alleging undue benefits were given to companies that were allocated coal blocks.
“Earlier we had a different module of bidding—we were planning to auction unexplored blocks, but with a production-linked payment,” said the official. “Now, with the ministry deciding all the auctions will be of one model only, and in the backdrop of the CAG allegations, we think we should get the blocks explored first.”
Jajodia said the government needed to take interim measures such as allowing the commercial sale of surplus coal by those mines that had the capacity to boost production, but could not consume all of it. He also said coal block allocations should continue until the auction process was in place.
“Selling surplus coal in the local market is much better than importing coal at a big price,” he said.
According to Jajodia, India’s coal imports could jump to 160 million tonnes (mt) this year and rise further to 250 mt in the next few years.
“Why should we allow countries like Australia, Indonesia and South Africa to sell coal at exorbitant rates when we have our own reserves,” Jajodia said.
Macquarie’s Arora said it was possible the government would find ways to maximize coal availability in the local market rather than resort to more imports as the current account was under stress.
“The government could definitely push Coal India (the country’s monopoly producer of the fuel) to raise output and fast-track stalled projects,” Arora said.
Under the auction plan, the 54 blocks have been categorized into three. The first category with 16 blocks is for government companies such as Steel Authority of India Ltd and Rashtriya Ispat Nigam Ltd, and commercial mining firms such as state-owned mineral explorers, and would include coking coal blocks. These companies will pay a reserve price, but will not place any bids as public sector companies are not allowed to do so.
The second category, also of 16 blocks, is meant for power companies such as NTPC Ltd and Damodar Valley Corporation, which will base bids on the tariffs they will charge. Those quoting the lowest tariff will win.
The last category will have 22 blocks available for competitive bidding by steel and cement firms. All blocks other than those for professional miners will be for captive use.
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