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Business News/ Politics / Policy/  10 coal blocks to be auctioned in August, linkages to follow

10 coal blocks to be auctioned in August, linkages to follow

The blocks have been earmarked for the unregulated sectorindustries that use coal for manufacturing products like cement, aluminium, steel, iron

Photo: ReutersPremium
Photo: Reuters

New Delhi: The government on Thursday announced that it would put up 10 coal blocks in the third tranche of auctions. These blocks have been earmarked for the unregulated sector—industries that use coal for manufacturing products like cement, aluminium, steel and iron.

“We have lined up 10 coal blocks, all of them in the unregulated sector, for the simple reason that there has been a lot of demand in this sector," said coal secretary Anil Swarup.

The auctions will be held from 11-17 August, with the allotments scheduled to take place by August-end. The total extractable reserves from these blocks is estimated to be 356 million tonne (mt). The blocks are located in Maharashtra, Jharkhand, Chhattisgarh and Odisha, he said.

Addressing a press conference, Swarup said the ministry was also considering a proposal to auction linkages for the unregulated sector. Linkages refer to assured supplies and are meant for projects that do not have captive coal mines and need to source coal from state-owned Coal India Ltd (CIL).

Thursday’s announcement follows two rounds of successful auctions. The 29 blocks auctioned so far fetched the government around 1.72 trillion, giving credence to the Comptroller and Auditor General’s 2012 claims that allocation of mines over the years without auction had cost the exchequer 1.86 trillion.

The process of coal block auctions was undertaken after the Supreme Court cancelled 204 allotments on the grounds that they were in violation of the law.

Two of the 10 coal blocks belong to Schedule II (mines that were operational when the allocations were cancelled last year) and the rest fall in Schedule III (those that were nearly operational when the allocations were cancelled).

The government has introduced one change in the auction rules this time around. Earlier, two or more bids from an entity with an end-use plant were treated as separate bids. Now, multiple bids from one company will be treated as a single bid. The top 50% of bids submitted get shortlisted for the next round of auctions.

In the case of linkages, the ministry proposes to hold auctions similar to those for telecom spectrum. Swarup said the government is trying to determine a fair price through a market-driven mechanism. “We felt that there has to be transparency as there was in the case of coal auctions. The two primary questions that we are attempting to answer are—who should get it (linkages) and at what price should they get it. And this has to be done transparently," he added.

The inter-ministerial committee assigned to draw up a procedure for allotment of linkages also recommended auctions last month. The procedure it recommended involves determining the prices of linkages based on demand. If the demand in the unregulated sector exceeds supply by CIL, the government will increase the price so as to bring down demand. This will go on till the demand for coal linkages equals the quantity that can be supplied by CIL. “It is not in the nature of winner-takes-all. Here we are trying to get a pool of users who are ready to pay a market-driven price," Swarup said.

The linkages are proposed to be auctioned for five years. The existing linkages, enforced through fuel-supply agreements, a legally binding document that requires CIL to supply the agreed quantum of coal, will be given a ‘grace period’ of one year. They will be put up for auction from July 2016.

New linkages, however, could be auctioned this year if CIL is able to mine enough coal. Its production grew by a record 11.8% in the first two months of the current fiscal year.

The government has sought comments on the proposal from various stakeholders in the next seven days. The proposal to auction linkages comes in the wake of reports of irregularities in their allotment. Some developers of power plants made false claims regarding meeting project milestones—with regard to order of equipment, financial status, land acquisition and water supply—to take advantage of the discounted prices offered by CIL, as reported by Mint on 18 September 2012)

The process of selecting companies for assured coal supply was as subjective as the earlier process for allotting captive coal blocks and also involved factoring in recommendations from central ministries and state governments. States were happy to provide letters assuring water supply (a key requirement) to power plant developers who signed in-principle agreements to set up projects.

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Published: 05 Jun 2015, 12:27 AM IST
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