Good response from global investors to commercial coal mine auctions

Source :IANS
Author :IANS
Last Updated: Fri, Jul 10th, 2020, 09:59:39hrs
Coal Mines

New Delhi: The government's big bang reform initiative of opening up the country's coal sector for commercial mining by the private sector seems to be getting good response from investors, even in a difficult economic environment where businesses are cutting corners just to remain afloat.

Since June 18, when the Coal Ministry started auction of coal mines for commercial extraction, around 350 registrations have been made and 26 tender documents have been sold. Moreover, 10 companies within a week have submitted they want to visit the mines.

The ministry also held a technical session in which a total of 1,140 people participated, of which 50-55 were foreigners. The government is hoping that the initial interest in the auctions would fructify into investments and several of the coal blocks would also see participation from global mining giants such as Rio Tinto, CVRD, and BHP Billiton.

In all, 41 mines with a total geological coal reserve of 17 billion tonnes is on offer under the first phase of commercial coal mine auctions. These include both large and small mines with peak rated capacities (PRC) ranging from 0.5 to 40 million tonnes per annum (mtpa) of coal. The cumulative PRC of all mines is 225 mtpa. Of these, the Centre is withdrawing one mine -- Bander in Maharashtra -- as it falls under eco-sensitive zone and is also considering the Chhattisgarh government's request to replace four coal blocks marked for auction for commercial mining.

The mines on offer are largely fully explored ones, meaning that they could be brought to production immediately. Moreover, four coming coal mines are on offer that could provide input to the steel sector. The mines are located in five states since coal mines auctions started in Chhattisgarh, Jharkhand, Madhya Pradesh, Maharashtra and Odisha.

The commercial coal mining auctions are completely different from earlier regimes of restricted sectors, use and price. Now there are no such restrictions at all.

"The interest for commercial mining auctions seems to have beaten all previous records as it has got the best ever response since coal mines auctions started in 2015. For all the mines on offer, there are at least five bidders and maximum of 11 bidders," official sources said.

The proposed auctions have terms and conditions which are very liberal allowing new companies to participate in the bidding process, reducing upfront amount, allowing adjustment of upfront amount against royalty, liberal efficiency parameters to encourage flexibility to operationalise the coal mines, transparent bidding process, 100 per cent FDI through automatic route allowed and reasonable financial terms and revenue sharing model based on National Coal Index.

There are no financial and technical criteria for bidders while floor price of coal mines has been set competitively at four per cent of revenue share. Plus, investors would have liberal exit option that could be exercised post lock-in period by just informing the nominated authority. For partially explored mines, investors could exit post completion of the mandatory work programme.

The successful bidders also will have flexibility in coal production unlike past and have provision for incentives for early production and coal gasification. The winners could have 65 per cent of scheduled production on an annual basis and 75 per cent of scheduled production over a block of 3 years.

There will also be complete freedom to use coal production for sale, captive consumption, sale to affiliates, coal gassification and exports. Moreover, exploitation rights for CBM and other minor minerals present in the coalfields would also be provided to miners.

Also, Security creation through mortgage over the coal mine has been allowed for scaling any financing needs. Change in control has also been allowed.

The commercial coal mine auction is not without its share of problems. The Jharkhand government has moved the Supreme Court challenging the Centre's ambitious project. The Jharkhand Mukti Morcha-led government in its plea sought a direction to the Coal Ministry to postpone the proposed commercial auction of mines.