New auction process for coal mining gets Cabinet’s approval

Revenue share model for bidding introduced

The Union Cabinet on Wednesday approved the auction methodology for commercial mining and sale of coal by private companies. This includes a new revenue-share model for bidding, eased eligibility criteria for bidders, and performance-linked incentives to boost coal production.

To improve investment sentiment in the coal sector, auctioned mines under the new methodology will have a reduced upfront amount. The coal ministry has also introduced incentive for early production. “There will be 50 per cent rebate to the mine owner in the revenue share paid to the state, in case of early production,” said the coal ministry.

The new methodology provides that bid parameters will be on revenue-share mode. The bidders will be required to bid for a percentage share of revenue payable to the government. “The methodology is oriented to make maximum coal available in the market at the earliest. It also enables adequate competition, which will allow discovery of market prices for blocks and faster development of coal blocks. Higher investment will create direct and indirect employment in coal-bearing areas, especially in the mining sector, and will have an impact on the economic development of these regions,” said the Ministry of Coal in a statement.

Coal mines will be put on auction on the basis of revenue share instead of rupee per tonne. “Bidding will start at 4-per cent

floor price. Bid increment in the multiple of 0.5 per cent up to revenue share of 10 per cent and thereafter in multiples of 0.25 per cent,” said the methodology of the coal ministry.

It further said the successful allottee shall pay revenue share to the government monthly. Coal ministry said the price of coal will be market-driven, with the creation of a new national coal index (NCI). It will estimate the price of coal to be sold in the open market from these mines and the revenue to be accrued to the mine-bearing states.

The government has also reduced the upfront amount that miners pay to the minebearing state. It will be 0.25 per cent of the value of estimated geological reserves of the coal mine payable in four equal instalments. The upper ceiling for the upfront amount has been fixed at ~500 crore for mines with reserves above 200 million tonnes (mt) and ~100 crore for up to 200-mt reserves. Earlier the miner was required to pay the full amount — larger the mine, higher the upfront money. A senior coal ministry official said this will push even smaller players to participate in the auction.

“The entire revenue from the auction/allotment of coal mines will accrue to the coalbearing states. This methodology will incentivise them with increased revenue, which can be utilised for the growth and development of backward areas and their inhabitants, including tribals. States in the eastern part of the country will be especially benefited,” said the Ministry of Coal.

The revenue-share formula will be based on the NCI. A senior coal ministry official said the NCI will reflect the movement of prices of coal in the domestic coal market. The NCI will be based on weighted combination of monthly prices of coal in various channels, such as notified prices, e-auction prices, and import prices.