Govt clears auction route for coal blocks - Livemint

Updated: Wed, Sep 25 2013. 12 39 AM IST

New Delhi: In a move that could potentially kick-start a transparent process of allocating coal blocks to private bidders, the cabinet committee on economic affairs (CCEA) on Tuesday approved the auction route for allotments.

The executive order effecting the new rules was prompted by the Supreme Court's censures on the award of captive coal blocks on a discretionary basis. At present, the apex court is monitoring a probe by the Central Bureau of Investigation into captive coal block allotments between 1993 and 2010.

In a statement, the government said that the methodology "provides for production-linked payment on rupee per tonne basis, plus a basic upfront payment of 10% of the intrinsic value of the coal block".

The government will calculate the intrinsic value of the coal block on the basis of net present value (NPV) of the block.

NPV is the difference between the present value of cash inflows and outflows. The value of the coal mined will be based on the prevailing global selling price of the fuel using international benchmark indices.

Coal block allocations became controversial after the Comptroller and Auditor General of India, the government auditor, said in a report last year that the national exchequer had lost Rs.1.86 trillion in notional value by following a discretionary allotment process rather than auctioning them.

"If you consider auction to be the way forward, then this is an objective way of benchmarking coal prices," said Dipesh Dipu, an energy analyst and a partner at Jenissi Management Consultants. "The government has gone for an extraction-linked pricing mechanism, rather than a production-linked one. Having said that, if you consider Indian coal and its quality and usage, linking it to international prices may make it appear overpriced."

Mint had reported on 15 April that the coal ministry had asked Ranchi-based Central Mine Planning and Design Institute to come up with detailed project reports for at least six of the 36 fields that the ministry aims to put up for auction.

Separately, CCEA also approved a policy on exploration and exploitation of shale gas and oil by national oil companies (NOCs) on acreages under the nomination regime proposed by the ministry of petroleum and natural gas.

"This policy will allow NOCs to carry out exploration and exploitation of unconventional hydro-carbon resources particularly shale gas and oil in their already awarded onland Petroleum Exploration License/Petroleum Mining Lease (PEL/PML) acreages under the nomination regime," the government said in a statement.

The companies will have to apply for grant of shale gas and oil rights in their interested PEL/PML acreages and will be required to undertake a mandatory minimum work programme.

The government said that royalty, cess and taxes would be payable at par with conventional oil/gas being produced from the areas.

Shale is fine-grained sedimentary rock containing organic material called kerogen, which, when distilled, can produce oil and gas. While there are no official estimates of shale gas reserves in India, according to oilfield services company Schlumberger Ltd, India has shale gas reserves of between 300 trillion cubic feet (tcf) and 2,100 tcf. The North-Eastern states and the Cambay basin are thought to have shale reserves.

In a bid to encourage takeout financing by infrastructure debt funds (IDFs) that provide access to low-cost long-term funds, CCEA approved measures to make them more accessible and attractive. The government decided to cap the annual guarantee fee payable to the concession authority at 0.05% per annum of outstanding debt financed by an IDF non-banking financial company (NBFC) for the first three years of operation.

It also decided to extend the benefits of public financial institutions (PFI) status to IDFs, like permitting IDF NBFCs access to the adjudicatory process through debt recovery tribunals as currently permitted for banks and PFIs. Infrastructure projects that have successfully met the commercial operations date will be eligible for investment by financial institutions like insurance companies, provident funds and mutual funds.

"IDFs are expected to channelize long term funds from insurance and pension funds, sovereign wealth funds, etc. to supplement lending for infrastructure projects by commercial banks which are increasingly being constrained by their asset-liability mismatch and exposure limits. The cost and tariff of Infrastructure services are likely to go down as a result of low cost, long term debt provided by IDFs," the statement said.

CCEA also cleared two road projects—six/eight-laning of the 43.9km-long Jawaharlal Nehru Port Trust (JNPT) port road project of the Mumbai JNPT Port Road Co. estimated to cost Rs.1,943.37 crore and four-laning of the 99km Solapur-Yedeshi section of National Highway 211 estimated to cost Rs.1,057.82 crore. Both the projects are in Maharashtra.

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