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Cabinet approves new methodology for auction of coal blocks for commercial mining

The Cabinet has approved the methodology for auction of coal and lignite mines/blocks and for sale of coal/lignite on revenue-sharing basis by the private sector

  • The new model makes way for revenue-sharing, eases eligibility criteria for bidders and has performance-linked incentives to boost coal production

  • It also permits commercial exploitation of the CBM present in the mining lease area

New Delhi: The Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, has approved the methodology for auction of coal and lignite mines/blocks and for sale of coal/lignite on revenue-sharing basis by the private sector. The announcement comes just days after Finance Minister Nirmala Sitharaman allowed commercial mining of coal, ending the monopoly enjoyed by state-run Coal India Limited. The new model makes way for revenue-sharing, eases eligibility criteria for bidders and has performance-linked incentives to boost coal production.

As the government said while announcing commercial mining for coal, it will allow anyone to bid for a coal block, even smaller players, and will boost investor sentiment in the sector. The tenure of coking coal linkage in the non-regulated sector linkage auction has now been increased upto 30 years.

The revenue-sharing model for coal block auction

This methodology provides that bid parameter be based on revenue sharing. The bidders would be required to bid for a percentage share of revenue payable to the government. The floor price shall be 4 percent of the revenue share. Bids would be accepted in multiples of 0.5 percent of the revenue share till the percentage of revenue share is up to 10 percent and thereafter bids would be accepted in multiples of 0.25 percent of the revenue share. There shall be no restriction on the sale and/or utilisation of coal from the coal mine.

“The methodology is oriented to make maximum coal available in the market at the earliest and it also enables adequate competition which will allow discovery of market prices for the blocks and faster development of coal blocks. Higher investment will create direct and indirect employment in coal-bearing areas, especially in the mining sector and will have an impact on the economic development of these regions,” an official statement said.

The nitty-gritty of payments

The successful bidder shall be required to make monthly payments which shall be determined as a product of the percentage of revenue share (final bid), the quantity of coal on which the statutory royalty is payable during the month and the notional price or actual price, whichever is higher.

The upfront amount shall be 0.25 percent of the value of estimated geological reserves of the coal mine payable in four equal installments. Another way to ascertain the upfront amount will be ceilings fixed by the government — Rs 100 crore for geological reserves of up to 200 MT and Rs 500 crore for reserves above 200 MT. Whichever method yields the lower upfront amount will be taken into consideration.

Methodology permits commercial exploitation of CBM

The new methodology also permits commercial exploitation of the CBM present in the mining lease area. It provides incentives to the successful bidder by way of offering rebates in revenue share in events of the early production of coal from the coal mine and the total quantity of coal consumed or sold or both for gasification or liquefaction on a yearly basis from the coal mine. “As the entire revenue from the auction/allotment of coal mines would accrue to the coal-bearing states, this methodology shall incentivise them with increased revenues which can be utilised for the growth and development of backward areas and their inhabitants, including tribals. States in the eastern part of the country will be especially benefited,” said the statement.