Centre expects negative bidding in coal block auction

Thursday, 22 January 2015 08:42 Lathish PV

CoalThe Central government expects fierce competition by power producers in the upcoming auction of coal blocks that may lead to negative bids — a situation where the winners will pay the government instead of charging consumers for their cost on developing the fields.

Under current guidelines, power firms have to bid lower than the price arrived after the technical stage for coal block auctions. The final price at which a company wins a block is the coal cost that can be passed on to electricity consumers — the company quoting the lowest charge will win. Power companies have to pay Rs 100 for every tonne of coal mined to the governments in states where the mines are located.

Government expects negative bidding in coal block auction Since power companies are so desperate to ensure the supply of coal that at least some of them may forgo the charge that they can levy on consumers. A shortage in coal is forcing several power stations to run at below capacity or even halt generation, and a captive coal block will offer the producers a lot more certainty to run their plants than depending on state-run monopoly Coal India for supplies.

The government has now provided for a scenario where the bid price for a block during the auction comes to zero when the companies agree to forego the fuel costs to bag a mine.

"When the bid price for a block hits zero, we will ask the bidders to quote a higher price than the fixed Rs 100 per tonne price. The bidder who agrees to pay the highest reserve price will get the block," Coal Secretary Anil Swarup told reporters on Wednesday.

The provision has been made after the coal ministry received queries on zero-coal cost during pre-bid conference held on January 11, he said. A senior coal ministry official on condition of anonymity said aggressive negative bids were expected for some of the operational mines reserved for the power sector.

Lanco InfratechBSE -2.55 % was the first to win a mine development and operation project based on negative bidding in 2011 when it agreed to pay Mahatamil Collieries, a joint venture between Tamil Nadu Electricity Board and Maharashtra State Mining Corp, for each tonne of coal mined from the JV's Gare Palma-II block.

The coal ministry announced that it will kick off on Thursday allotment of 36 coal blocks with over 10 billion tonnes of reserves for state and central government companies that have steel and power plants. While 35 of these coal blocks are reserved for the power sector, one will be for a state-run steel plant. The blocks can fire plants generating at least 40,000 Mw of electricity.

The ministry will also specify the criteria of awarding the blocks on nomination basis to government companies - the guidelines could include preparedness of the enduse plants and their proximity to the mine, progress of development of coal blocks by the company in the past, financial and technical capabilities of the applicant and the technology proposed to be used for mining and the demand and supply gap of coal of states that hosts the blocks, he said.

The mines are in the states of Chhattisgarh, Jharkhand, West Bengal, Maharashtra, Odisha and Telengana.

The coal blocks earlier belonged to companies like NTPC, Steel Authority of India, Damodar Valley Corp, National Aluminium Company and power and mining corporations of states like West Bengal, Uttar Pradesh, Karnataka, Andhra Pradesh, Rajasthan, Gujarat, Odisha and Punjab.

Mining licences of 204 coal blocks, including these 36, were cancelled by the Supreme Court on September 24 last year and the government later decided to e-auction or allocate them afresh.

The blocks that are likely to be offered to government companies on Thursday include NTPC's Chatti Bariatu and Chatti Bariatu South with 597 million tonnes of reserves, Talaipalli with 965 million tonnes, Kerandari with 229 million tonnes and Dulanga with 260 million tonnes of coal.

Applications from government companies are also likely to be invited for the Chendipada block with 795 million tonnes reserves, earlier belonged to the power utility of Uttar Pradesh and Punjab State Electricity Board's Pachwara Central block with 562 million tonnes of coal.

The government has already put 24 coal blocks on auction to private power, steel and cement companies.

Source - ET