Transparency in the process has paid rich dividends, says Coal Secretary
The first round of auctions for 31 coal blocks has surpassed the Centre’s expectations with proceeds set to cross Rs. 2-lakh crore, including the royalty amounts.
The sale of blocks belonging to two categories — those already producing (18) and those ready-to-produce (13) — which started on February 14 ended last month.
The Aditya Birla Group cornered the most number of blocks — five — bidding through Hindalco and UltraTech. Naveen Jindal’s Jindal Power Ltd, Anil Agarwal’s Vedanta Group, and GMR won two blocks each. Gautam Adani’s Adani Power managed only one ready-to-produce block, despite submitting bids for all the power sector blocks.
“The transparency in the auctions has paid rich dividends,” Coal Secretary Anil Swarup said. Swarup said there will be around Rs. 97,000 crore of additional benefits from the lower electricity tariffs, through the reverse auction of the coal blocks for the power sector.
While the bid amounts have been better than what the Coal Ministry expected, there were hurdles in the auction process itself. Two assets had to be taken off the block due to ongoing litigation, while five were dropped for lack of interest. One block, Jamkhani in Odisha, will be auctioned later.
These blocks will now be handed over to a ‘custodian’ to ensure that production continues. Producing blocks saw higher bids than the ready-to-produce assets. The former set fetched the host States Rs. 1.22 lakh crore while the latter group brought in around Rs. 80,000 crore. This does not include the royalty which could add up to another Rs. 25,000 crore, officials said.
The caution among the buyers for the latter set was evident from the bid amounts.
While seven of the 18 producing blocks sold for over Rs. 2,500 a tonne, the ready-to-produce blocks got a maximum bid of Rs. 2,291/tonne.
This apart, the coal ministry has also received 107 applications from state-run firms like NTPC, SAIL and Damodar Valley Corp for the allocation of 43 coal blocks, exclusively kept for them.
The lowest winning bid was Rs. 108/tonne from Jindal Power Ltd for Gare Palma IV/2&3. The bid is under examination.
Prime minister Narendra Modi was elated with the bidding.
"This is what we have done in 11 months. Our nation earned a revenue of Rs.110,000 crore from the auction of only 19 coal blocks of the total 204 blocks," he said after the first phase of auctions. "Imagine how much the nation would earn when we auction all 204 coal blocks?" the prime minister asked, adding that when all 204 coal mines are put on the auction block, the revenue figures will surpass the figure of Rs.186,000 crore which the official auditor had potentially estimated.
The auction has a clause that extractable reserves of the allocated coal mine cannot exceed 150 percent of the annual requirement of the specified end-use plant over a period of 30 years. As regards the payment, an upfront amount has been notified for each block. An amount equal to 50 percent of that is payable immediately, 25 percent upon the execution of the mining lease and the remaining on the grant of mine opening permission. The licencee is also required to make monthly payments on the basis of the final price, that will have to be made within 20 days of the expiry of each month. There will also be an escalation in annually, based on a reference mechanism that will be published in the first week of April. “Once the Coal Bill gets passed, auction of 15-20 more coal blocks will start in April-end or the first week of May,” the Coal Secretary said.
Who will hold the Rs. 2.7 lakh crore?
The government is expected to raise more than 15 lakh crore combined from the coal auctions, with over Rs 2.7 lakh crore already in the kitty from the current round. The money received will be split between the states and the centre and will accrue steadily over a period of 30 years, depending on the life of the mine. But how much is the states’ share in this amount and how will they be getting the money. Also, after bidding at such aggressive rates, how will the consuming industry be impacted? In the Coal Mines Bill, it is not clear who will be the custodian of the Rs. 2.7 lakh crore or how it will be disbursed to the host States. A study done by SBI’s Eco Wrap said that total payment to the states over the next 30 years would be Rs 4 lakh crore with an equal amount to flow in regularly through royalty payment and money raised from these auctions will go entirely to the state governments where the mines are located.
“The Coal Bill will help the coal-bearing States of eastern India which are generally less developed. The primary beneficiaries of this bonanza are the States of Odisha, Chhattisgarh, Jharkhand, Maharashtra and West Bengal,” the Government maintains. In the case of coal for power sector, which was done through a reverse auction basis, Coal Secretary Anil Swarup said that Madhya Pradesh will get Rs 39,900 crore, Chhattisgarh Rs 26,425 crore, Jharkhand Rs 14,498 crore, West Bengal Rs 13,210 crore, Maharashtra Rs 1,819 crore and Odisha Rs 607 crore.
States will get a sizeable share of the revenue, but what will be the impact on the companies who have bid aggressively? Edelweiss in their report on coal auctions have said that while the objective for the power sector bidders were to mainly achieve fuel security and retain the mines, the benchmark for non-power sector bids seem to be landed cost of imported coal. As long as fuel cost is lower than the landed cost of imported fuel, non-power sector producers can expect to remain profitable. Further, the companies who have won the bids will be sheltered from future increase in international price of fuel. In case fuel prices crash below their bid price, the option of importing fuel is always open. For the power sector, the reverse auction method used by the government will ensure that there will be saving in power tariff to the extent of over Rs 96,000 crore to the consumers, according to the coal secretary. With coal auctions a success, certain operational issues such as handing over the mines to successful allottees must be worked out. Coal ministry officials, accompanied by the successful allottees are meeting chief secretaries of the coal bearing states to ensure smooth handover and transfer of rights and titles. The opposition also wants the Government to take the views of all States involved before suggesting a framework for allotment of the money, as concerns have been raised by several States.
The first round of auctions for 31 coal blocks has surpassed the Centre’s expectations with proceeds set to cross Rs. 2-lakh crore, including the royalty amounts.
The sale of blocks belonging to two categories — those already producing (18) and those ready-to-produce (13) — which started on February 14 ended last month.
The Aditya Birla Group cornered the most number of blocks — five — bidding through Hindalco and UltraTech. Naveen Jindal’s Jindal Power Ltd, Anil Agarwal’s Vedanta Group, and GMR won two blocks each. Gautam Adani’s Adani Power managed only one ready-to-produce block, despite submitting bids for all the power sector blocks.
“The transparency in the auctions has paid rich dividends,” Coal Secretary Anil Swarup said. Swarup said there will be around Rs. 97,000 crore of additional benefits from the lower electricity tariffs, through the reverse auction of the coal blocks for the power sector.
While the bid amounts have been better than what the Coal Ministry expected, there were hurdles in the auction process itself. Two assets had to be taken off the block due to ongoing litigation, while five were dropped for lack of interest. One block, Jamkhani in Odisha, will be auctioned later.
These blocks will now be handed over to a ‘custodian’ to ensure that production continues. Producing blocks saw higher bids than the ready-to-produce assets. The former set fetched the host States Rs. 1.22 lakh crore while the latter group brought in around Rs. 80,000 crore. This does not include the royalty which could add up to another Rs. 25,000 crore, officials said.
The caution among the buyers for the latter set was evident from the bid amounts.
While seven of the 18 producing blocks sold for over Rs. 2,500 a tonne, the ready-to-produce blocks got a maximum bid of Rs. 2,291/tonne.
This apart, the coal ministry has also received 107 applications from state-run firms like NTPC, SAIL and Damodar Valley Corp for the allocation of 43 coal blocks, exclusively kept for them.
The lowest winning bid was Rs. 108/tonne from Jindal Power Ltd for Gare Palma IV/2&3. The bid is under examination.
Prime minister Narendra Modi was elated with the bidding.
"This is what we have done in 11 months. Our nation earned a revenue of Rs.110,000 crore from the auction of only 19 coal blocks of the total 204 blocks," he said after the first phase of auctions. "Imagine how much the nation would earn when we auction all 204 coal blocks?" the prime minister asked, adding that when all 204 coal mines are put on the auction block, the revenue figures will surpass the figure of Rs.186,000 crore which the official auditor had potentially estimated.
The auction has a clause that extractable reserves of the allocated coal mine cannot exceed 150 percent of the annual requirement of the specified end-use plant over a period of 30 years. As regards the payment, an upfront amount has been notified for each block. An amount equal to 50 percent of that is payable immediately, 25 percent upon the execution of the mining lease and the remaining on the grant of mine opening permission. The licencee is also required to make monthly payments on the basis of the final price, that will have to be made within 20 days of the expiry of each month. There will also be an escalation in annually, based on a reference mechanism that will be published in the first week of April. “Once the Coal Bill gets passed, auction of 15-20 more coal blocks will start in April-end or the first week of May,” the Coal Secretary said.
Who will hold the Rs. 2.7 lakh crore?
The government is expected to raise more than 15 lakh crore combined from the coal auctions, with over Rs 2.7 lakh crore already in the kitty from the current round. The money received will be split between the states and the centre and will accrue steadily over a period of 30 years, depending on the life of the mine. But how much is the states’ share in this amount and how will they be getting the money. Also, after bidding at such aggressive rates, how will the consuming industry be impacted? In the Coal Mines Bill, it is not clear who will be the custodian of the Rs. 2.7 lakh crore or how it will be disbursed to the host States. A study done by SBI’s Eco Wrap said that total payment to the states over the next 30 years would be Rs 4 lakh crore with an equal amount to flow in regularly through royalty payment and money raised from these auctions will go entirely to the state governments where the mines are located.
“The Coal Bill will help the coal-bearing States of eastern India which are generally less developed. The primary beneficiaries of this bonanza are the States of Odisha, Chhattisgarh, Jharkhand, Maharashtra and West Bengal,” the Government maintains. In the case of coal for power sector, which was done through a reverse auction basis, Coal Secretary Anil Swarup said that Madhya Pradesh will get Rs 39,900 crore, Chhattisgarh Rs 26,425 crore, Jharkhand Rs 14,498 crore, West Bengal Rs 13,210 crore, Maharashtra Rs 1,819 crore and Odisha Rs 607 crore.
States will get a sizeable share of the revenue, but what will be the impact on the companies who have bid aggressively? Edelweiss in their report on coal auctions have said that while the objective for the power sector bidders were to mainly achieve fuel security and retain the mines, the benchmark for non-power sector bids seem to be landed cost of imported coal. As long as fuel cost is lower than the landed cost of imported fuel, non-power sector producers can expect to remain profitable. Further, the companies who have won the bids will be sheltered from future increase in international price of fuel. In case fuel prices crash below their bid price, the option of importing fuel is always open. For the power sector, the reverse auction method used by the government will ensure that there will be saving in power tariff to the extent of over Rs 96,000 crore to the consumers, according to the coal secretary. With coal auctions a success, certain operational issues such as handing over the mines to successful allottees must be worked out. Coal ministry officials, accompanied by the successful allottees are meeting chief secretaries of the coal bearing states to ensure smooth handover and transfer of rights and titles. The opposition also wants the Government to take the views of all States involved before suggesting a framework for allotment of the money, as concerns have been raised by several States.
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