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E-auction: Current mine owners to get head start over new bidders

By Shreya Jai
December 15, 2014 16:33 IST
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The captive coal mining firms in producing blocks might not lose their mines even after the deadline of March 31, 2015, set by the Supreme Court. 

The government's final rules for reallocation of cancelled mines through an e-auction process give the existing owners an advantage over new bidders.

In Phase-I, the 74 operational ones among the 204 deallocated mines will be on the block. The successful bidder will mine coal only for captive use, for projects in the power, steel or cement sector.

The detailed tender document that potential bidders have to file asks for precise details of end-use, amount of coal needed, distance of the end-use plant from the mine and the project's completion status. 

“A company eligible to bid for any Schedule-II coal mine under sub-section (3) of Section 4 of the Ordinance shall have incurred an expenditure of not less than 80 per cent of the total project cost of the unit or phase of the specified end-use plant for which the company is bidding,” says a gazette notification in this regard, adding “a company eligible to bid for any Schedule-III mine shall have incurred an expenditure of not less than 60 per cent of the total project cost of the unit or phase of the specified end-use plant for which the company is bidding.”

Under Schedule-II are the 42 producing coal blocks, while Schedule-III lists the 32 that are about to begin production.

This implies the power, steel and cement projects with attached captive mines could get these back after payment of penalty.

“The methodology is transparent: The best fit bidder will get the suitable mine. The government is asking for the bidder's preparedness to use the mine allotted. In almost all cases, the existing owner is the best prepared with end-use,” said a senior executive in the know of the matter.

The industry stakeholders consulted by the government while designing the final auction rules are hoping the government will not let the investments made in end-use plants, especially those for power projects, go waste. 

The gazette notification also mentions the capacity of the specified end-use project shall be in proportion to the capacity of the Schedule-II or Schedule-III coal mine a company is bidding for. 

The Centre plans to conduct a two-stage bidding under the Coal Mines Special Provisions Ordinance, promulgated to reallocate the cancelled blocks.

Power sector executives believe the government, by asking for technical bids first, has already separated the men from the boys.

The bidder qualifying in the first stage will be asked to make a financial bid under e-auctioning. The rules specify the technical and financial qualification of participants in the auction. 

“Unlike last time, we will see serious bidders during this (first) phase of auction; the criteria for technical bids will bring the current owners back in the game,” said a senior industry official who did not wish to be named.

He said new players might enter, if the compensation- and penalty-related issues were taken care of well, but it would be in the larger industry interest that the existing owner got its mine back after paying a penalty ordered by the Supreme Court. 

The court had cancelled 204 block allocations, made through the screening committee route over the past two decades, terming those “illegal” and “unconstitutional”.

It had given the government time till March 31 to reallocate operational mines and asked mine owners to pay a fine of Rs 295 per tonne of coal. 


The phases

Govt to conduct two-phase bidding (technical & financial)


The successful bidder to meet criteria like status of end-use plant, its proximity to the mine and amount of coal needed

No loss

The end-use projects with captive mines likely to get what they had lost

Ahead in race

Earlier owners ready to jump in the race are hopeful of getting back their mines

Protecting money

Stakeholders are hopeful the govt will not let investments in end-use projects go waste

Damage control

Power-generation capacity of 28,000 Mw has been affected by cancellation of coal blocks

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Shreya Jai in New Delhi
Source: source

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