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Government issues draft rules for coal block auction

Actual transactions won't happen before three moths from the date of public notification; fixes floor price at Rs 150 per tonne

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Extracting value

For power projects having Power Purchase Agreements, a fixed reserve payment of Rs 100 a tonne of coal has to be made on actual production

The intrinsic value of the blocks would be calculated by computing its Net Present Value based on discounted cash flow method

Winning bidder has to pay up 10% of this intrinsic value upfront and the balance annuitised and paid on a per tonne basis

The government on Thursday released the draft guidelines for e-auction of 92 cancelled coal mines in the first phase, paving the way for the actual transactions, which, according to the time schedule disclosed, won't happen before three months from the date of public notification and sale of tender documents.

The guidelines said the auctions to be carried out by state-owned MSTC Ltd would happen under two methods: forward bidding where specified end-use is iron and steel, power for captive use and cement, and reverse bidding where specified end-use is power generation.

"The offer shall be the bid price per tonne of coal produced. Such bid price shall be above the floor price in case of forward bidding or below the ceiling price in case of reserve bidding," the guidelines said, fixing a floor price of Rs 150 per tonne and ceiling price would be the prevailing notified price of Coal India.

Additionally, for power projects having Power Purchase Agreements, a fixed reserve payment of Rs 100 a tonne of coal has to be made on actual production.

The intrinsic value of the blocks would be calculated by computing its Net Present Value based on discounted cash flow method. Winning bidder has to pay up 10% of this intrinsic value upfront and the balance annuitised and paid on a per tonne basis, the rules said.

The coal ministry has sought comments from stakeholders by December 22 and an inter-ministerial committee, drawn from power, steel, finance and other ministries, would also study the approach paper to auction and suggest changes.

According to qualifying requirements, at least 80% of the investment in the project and at least 40% of investment in other units if it is a multiple unit project should be incurred for Schedule II mines, and similar condition of 60% and 30% investment have been imposed for Schedule III mines.

Schedule II mines are those which have come to production and Schedule III consists of those about to start operations.

"It is a good step as it will ensure that coal from these mines will get utilised without much delay. However, clarification is required whether the projects without PPAs can also participate," Ashok Khurana, director general of Association of Power Producers told dna.

The guideline has suggested several restricted clauses, several industry insiders said.

Only half of the pre-qualified bidders would be allowed to bid. The government will deduct bank guarantee in proportion to shortfall in production in any year. Any surplus coal has to be given to Coal India at the bid or the notified price. On top of these, performance security to the extent of 14% of peak capacity of the mine has to be paid.

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