Lok Sabha Question No. 6086 (UNSTARRED), answered on 2018-04-04
Subject: Methodology for Auction of Coal Mines
Ministry: COAL
Asked by: PONGULETI SRINIVASA REDDY, A. ARUNMOZHITHEVAN

## Government of India Ministry of Coal Lok Sabha Unstarred Question No. 6086 To be answered on 04.04.2018

## Methodology for Auction of Coal Mines

## 6086. SHRI PONGULETI SRINIVASA REDDY: SHRI A. ARUNMOZHITHEVAN:

Will the Minister of COAL be pleased to state:

- (a) whether any progress has been made in auction of coal mines/blocks under the recently approved methodology;
- (b) if so, the details thereof;
- (c) whether the Government has received comments from stakeholders on this methodology; and
- (d) if so, the details thereof?

## ANSWER

## MINISTER OF RAILWAYS AND COAL (SHRI PIYUSH GOYAL)

(a)  to  (d): To prepare the methodology for allocation of coal mines through auction for sale of coal, a Discussion Paper for stake holder consultation was prepared and placed in the public domain to solicit public opinion/comments.  An  Inter-Ministerial  Committee  (IMC)  of  Ministries  / Department of Coal, Power, Steel, Industrial Policy & Promotion, Economic Affairs,  Expenditure,  Legal  Affairs,  Mines  and  Micro,  Small  and  Medium Enterprises was constituted to examine the draft methodology on auction of coal  mines  for  sale  of  coal.  As  the  purpose  of  commercial  mining  is  to encourage transparent pricing of coal based on market forces as well as to create a market place for coal with multiple producers to drive competition and  adopt  best  practices  in  mining  as  well  as  environment  management, auction  of coal mines  for  sale of  coal  on  Rs.  per  tonne  basis  was recommended by IMC. This methodology for auction for coal mines/blocks for sale of coal under the provisions of the Coal Mines (Special Provisions) Act,  2015  and  the  Mines  and  Minerals  (Development  and  Regulation)  Act, 1957 has been approved by the Government and an Order in this regard has been  issued  on  27.02.2018. A  copy  of  the  Order  is  attached  with  the reply. Allocation  of  coal  mines/blocks,  including  auction  of  coal  mines  for sale of coal, is an ongoing process .

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## No .CBA2-13011/ 1/2017-CBA2-Part(1) Government of India Ministry of Coal

Shastri Bhawan, New Delhi, 11`' February, 2018

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Dated the ,2 gi

## ORDER

Subject: Methodology for Auction of Coal Mines/Blocks for sale of coal under the Coal Mines (Special Provisions) Act, 2015 and the Mines and Minerals (Development and Regulation) Act, 1957.

The undersigned is directed to refer to Rule 8 (3) of the Coal M (Special Provisions) Rules, 2014 read with Section 8 (5) of the Coal M (Special Provisions) Act, 2015 and Rule 3(1) (d) of the Coal Blocks Alloca Rules, 2017 read with Section 11A of the Mines and Minerals (Development and Regulation) Act, 1957 and to say that the Central Government approved the methodology for auction of coal mines/blocks identified under relevant Act for sale of coal as mentioned in para 2 below:

## 2.1 Methodology for auction of coal mines for sale of coal on Rs. per ton basis:

2.1.1 Bid Parameter: The auction will be an ascending forward auction whereby the bid parameter will be the price offer in Rs. /tonne which be paid to the State Government on the actual production of coal.

The floor price shall be unit ratio in terms of Rs. per tonne determined in accordance with methodology as mentioned at Sl. No. 1 o Ministry of Coal's order no. 13016/9/2014/CA-III dated December 26

2014 at Annexure-I.

The bidder who submits the highest price offer (Final Price Off shall be the Successful Bidder.

2.1.2 Sale and/or Utilisation of Coal: There shall be no restriction on the sale and/or utilization of coal from the coal mine. The Succe Bidder shall be free to sell coal in any manner as may be decided by

Successful Bidder including sale to affiliates and related partie coal for captive consumption and export of coal.

2.1.3 Coal Production Schedule: Successful Bidder shall have certain degree of flexibility to manage its production depending on the scenario and will be allowed to reduce its production below Peak Capacity of the coal mine. Successful Bidder shall also be allo increase its production subject to a revision in Mining Plan and s approvals. While the Successful Bidder shall be allowed to manag production quantity (subject to the cap as per the Mining Plan event of any economic downturn or other such event, a drop i actual production is allowed, not below 50% of the production as p Mining Plan. However, in any five year block, the Successful Bidder have to mine out at least 70% of the production as per the Mining

- 2.1.4 Annual Adjustment of the Final Price Offer (including windfa gains, if any): Windfall gain can be defined as a very significant incr in revenue in comparison to increase in costs. During the mining period, as a natural course, it is expected that the selling pric well as cost of production will increase due to inflation. Windf may arise in some situations, resulting in significant increa profit of Successful Bidder.

In order to capture the potential revenue upside, including windfa (if any), the Final Price Offer (Rs. / tonne) shall be considered the year of bidding with yearly adjustment linked to the Wholesal Index - coal (of relevant grade) as published by GOT, Minis Commerce and Industry (website: www.eaindustrv.nic.in ) subject to the condition that such figure shall not at any time be less than Price Offer. It shall be the responsibility of the concer Governments to carry out the above calculation for determining ad Final Price Offer and collecting the same from the Successful Bidde

- 2.2 For sale of coal, Foreign Direct Investment to the extent of 100% allowed in coal mining activities including associated processing infra to attract international players to create efficient and competitive c The nodal Ministry/Department i.e. Department of Industrial Polic Promotion shall be approached for the same.
- 2.3 Washing of coal by the Successful Bidder should be as per e guidelines of M/o Environment, Forest and Climate Change.
- 2.4 The mines to be auctioned for sale of coal and their time schedule decided by the Ministry of Coal.
- 2.5 Terms and Conditions / modalities including eligibility criteria decided by Ministry of Coal as the same are part of Tender Conditions.
- 2.6 The above methodology for auction of coal mines shall also be appli the coal mines to be auctioned for sale of coal under the provisi MMDR Act, 1957 and Rules made thereunder.

This issues with the approval of Competent Authority.

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(Rishan R athiang) Under Secretary to the Government of India

To

- 1) The Nominated Authority, Ministry of Coal
- 2)  JS (NKS), Ministry of Coal: For appropriate necessary action in res auction of coal mines under the relevant provisions of the MMDR Act, and Rules made thereunder.
- 3)  Department of Industrial Policy and Promotion: For necessary actio respect to para 2.2 above.

Copy to :

- . 1) TD (NIC) - with the request to upload on the website of Mini Coal

## No. 13016/9/2014-CA-III Government of India

## Ministry of Coal

Shastri Bhawan, New Delhi,

Dated the 26th December, 2014

## ORDER

Subject:- Methodology for fixing Floor/Reserve Price for Auction and Allotment of Coal Mines/Blocks.

In accordance with the provisions of Rule 8(3) of the Coal Mines (Special Provisions), Rules, 2014 and Section 8(5) of the Coal Mines (Special Provisions), Ordinance, 2014 the Government is pleased to approve the Methodology for fixing Floor/ReserVe Price for Auction and Allotment of Coal Mines/Blocks as mentioned below:-

## METHODOLOGY FOR FIXING FLOOR/RESERVE PRICE

1. For fixing floor price for Auction for sectors like Steel, Sponge iron, Cement, Captive Power etc.:

The Intrinsic Value of the coal block will be calculated by computing its Net Present Value (NPV), based on Discounted Cash Flow (DCF) method. The 10 % of this intrinsic value will be payable upfront in 3 installments of 5 2.5% and 2.5% as prescribed in the bidding document. The final NPV (after subtracting the upfront payment received from the bidder) will then be annuitized to· become equal to a unit ratio in terms of Rs/tonne (viz. flo price). In this case for calculation of intrinsic value, it is proposed th extant notified price of CIL (price of domestic coal) for the non-regulate sectors for the corresponding GCV bands will be taken into account for computing NPV. However, floor price shall not be less than Rs. 150/- per tonne. The resultant bid price (Rs/tonne) shall be considered as base for t year of bidding with yearly escalation linked to the WPI. The statutory royalt payable on coal will continue to be governed as per extant rules.

2. For fixing Reserve Price for coal mines /blocks to be allotted for power projects to be set up in future on tariff based bidding (Case-2) and
2. For fixing Reserve Price for coal mines/blocks to be allotted to the
3. Government Companies for specified end-uses :

A fixed Reserve Price of Rs.100/- per tonne of coal shall be payable, as per actual production by the successful allottee. The statutory royalty payabl

....2/-

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on doal,will continue to be governed as per extant rules. This.would ensur that there is no adverse impact on power tariff. The successful allottee s have to pay upfront payment, as may be prescribed in the tender/allotment document. There is no bidding on coal under these two categories. The `Reserve Price' may be escalated using a pre-determined formula that is prescribed in now prevailing Standard Bidding Documents for Case-1 bidding as formulated by Ministry of Power for escalation of fuel cost from captiv mines. However, for existing generation capacity contracted through tariff bi based PPAs (Case-2), arranging fuel is the responsibility of power procurer Such Case-2 projects shall not be eligible to participate in the auction pro for the coal blocks.

4. For fixing the ceiling price for coal mines/blocks to be auctione for generation capacity having cost plus PPAs or for generation.capacity having tariff bid based PPAs (Case-I)/generation capacity tct b contracted through cost plus PPAs or through tariff bid based PPAs (Case-1) in future : -
- a. A Ceiling Price of CIL Notified price for each coal block will be fixed and the bidders will be mandated to quote lower than this Ceiling Price. The Ceiling price shall be fixed at Run-of-Mine . (ROM) price of equivalent grade, as specified by CIL for the power sector. The bidder quoting the lowest will be the successful bidder. This will be taken fo transfer price to the plant from the coal block. The resultant bid pri of coal will be escalable in line with a pre-specified escalation formu for the purpose of considering the energy chaige. This method will ensure that the benefit of lower bid price is passed through to t

consumers. ·

- b. The bid price of coal shall be considered as base for the year of bidding and it shall be escalable with pre-determined formula that is prescribed in now prevailing Standard Bidding Document for Case-1 bidding as formulated by MoP, for escalation of fuel cost from captive mines.
- c. A fixed Reserve Price of Rs.100/- per tonne of coal shall be payable, as per actual production by the successful allocattee. The statutory royalty payable on coal will continue to be governed as per extant rules i.e. at the CIL notified price. Similarly, the reserve p may also be escalable using the same formula as in `1D' above.
- d. The successful allottee shall have to make upfront payment @ 10 % of the intrinsic value of the coal block in 3 installments of 5%, 2.5% and 2.5%, as prescribed in the bidding document.

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- e. TO ensure that, the benefit of coal is passed on to the consumers, the following conditions has been prescribed:
- I. For generation capacity having cost plus PPAs or generation capacity to be contracted through cost plus PPAs in future 5or the purpose of determining the fuel cost for cost . plus PPAs, the Appropriate CommissiOn will allow bid price of coal along with subsequent escalation as provided in coal block bid document as being equivalent to the Run of Mine (ROM) cost of coal together with other allowable expenses and levies, provided that it shall not lead to higher energy charge throughout the tenure of PPA than that which would . have been obtained as per the terms and conditions of the existing PPA.
- II. For the generation capacity contracted through tariff bid based PPAs (Case-3) The Appropriate Commission shall review the quoted energy charge keeping in view that the actual bid price of coal along with subsequent escalation as provided in coal block bid document as being equivalent to Run of WIC (ROM) cost of coal alongwith statutory levies and other permissible components of energy charge, provided that such revision shall not lead to higher energy charge throughout the tenure of PPA than that which would have been obtained as per the terms and conditions of the existing PPA. For this purpose, the allocation of coal block under the new provisions shall be treated as "Change in Law" to enable the Appropriate Commission to revise the tariff downwards in accordance with the provisions of PPA.
- III.  For the generation capacity to be contracted through tariff bid based PPAs. (Case-1) in future The Appropriate Commission shall while adopting the tariff under Section 63 of the Electricity Act, 2003, ensure that the energy charge is derived based on the actual bid price of coal along with subsequent escalation as provided in coal block bid document as being equivalent to Run of Mine (ROM) cost of coal alongwith statutory levies and other permissible\_ components of energy charge.
5. For this purpose Ministry of Power will make suitable provisions in the Tariff policy and/or in the bidding
- IV. guidelines issued under the Electricity Act, 2003.
- f. For power plant having uncontracted capacity, the bidder shall be mandated to cap its merchant capacity at 15 % of the generating

....4/-

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capacity linked to the allotted coal block for sale of power outs medium and long terra PPAs contracted under Section 62 or Section 63 . of the Electricity Act, 2003. Further the bidder shall have to pay additional reserve price for the quantum of coal used for power sold i the merchant market. The additional reserve price for coal used fo merchant sale of power shall be based on intrinsic value of the coa block annuitized over the yearly production in Rs/tonne terms. The intrinsic value can be arrived at with the existing approved methodology for steel/sponge iron/cement sectors/captive power. The additional Reserve Price shall not be less than Rs. 150/- per tonne. Further t resultant additional reserve price (Rs/tonne) shall be considered base for the year of bidding with yearly escalation linked to the WPI.

5. Any further revision of CIL price after the bid due date would not have any impact on the bid price of the blocks already bid as escalation on th price has already been provided for in para 4.(b) above. For future bidding of coal blocks, the then prevailing CIL\_price cL be considered .for determining ceiling price.
6. For auction/allotment of coal blocks for the purpose of sale of coal a provided in Section 4(2)  of the Coal Mines (Special Provision) Ordinance, 2014, a separate methodology will be formulated.

This issues with the approval of Competent Authority.

(S.K. SHAH1) Director Ph.23382807

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on the website of Ministry of Coal

Nominated Authority, Ministry· of Coal

Copy t : TD (NIC) - with the request to upload

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