Post the Supreme Court's order cancelling coal block allocations, India Inc is now hoping that the government would enable early re-auction of these blocks in order to avoid fuel disruptions after March 31, 2015.
The apex court order has clearly laid out a course of action for next six months and the period after that. According to the order, 38 operating blocks and six which are ready to produce coal with immediate effect can continue to operate for six months, post which Coal India would take over and continue mining.
The companies are hoping that the government would conduct auctions before this deadline.
"Ideally, government should conduct auction within six months, so that winners are ready before March 31 deadline, so that double handover of mines can be avoided. However, there would be issues related to land rights, as those might remain with existing owners. Some special ordinance may be required to pass on land rights," Debasish Mishra, senior director, Deloitte in India.
Experts were divided on whether the government would be able to undertake such a massive exercise within six months.
"With 70% of producing coal blocks to power sector, we see limited possibility of auction of power sector linked blocks in the six-month period, while auctioning of balance coal blocks (linked to iron and steel/cement) can be achieved," JM Financial said in a note.
The process of coal block auction for the power sector could be under Case-2 bid mechanism, with the fuel cost benefit being passed on to consumers, Motilal Oswal Securities said.
"However, based on our interactions with key stakeholders limited progress has been made on finalisation of Standard Bidding Document (SBD) essential for conducting tariff based bidding," JM Financial said.
Mishra believes that the government should have separate auctions for industry categories as the coal requirement and cost structures of power, steel, aluminium and cement companies are different.
"The government may conduct auction broadly for two categories independent power producers (IPPs) and captive power producers (CPPs), where in bidding could be based on tariffs and royalty, respectively," Giriraj Daga, senior analyst at Nirmal Bang Securities, told dna.
Besides regulatory bottlenecks, infrastructure bottlenecks will be key in conducting auctions as the blocks with dedicated infrastructure for end-use plant have limited alternatives for evacuating coal.
Nirmal Bang said it is possible for the government to auction the operational 37 blocks and five likely-to-be operational blocks, as these have already obtained the required regulatory approvals.
"Captive consumers like sponge iron/aluminium/cement manufacturers will have a higher chance of obtaining the coal blocks under the auction route, rather than independent power producers (IPPs)," the report said.
The SC has said IPPs will have to sign power purchase agreements (PPAs) which make them eligible for getting linkage coal. Sponge iron/aluminium/cement producers will not get first preference for linkage coal and, therefore, they will witness a large cost difference between e-auction coal and captive coal. It must be noted that coal price is highest in e-auctions, followed by linkage coal and captive coal, thus sponge iron/aluminium/cement producers will be motivated to bid higher than IPPs, said Daga.
"The government will start auction of de-allocated coal mines on a clean slate, and they will be auctioned depending on the reserves linked output (normally a 30-year period). This will enable all kinds of players to participate in the auction, where smaller players bid for smaller mines and vice-versa," he said.
More clarity will emerge as the government draws its action plan for tackling the coal mine issues. But many believe that government can turn current crisis in to an opportunity by opening up nationalised coal sector, which will provide much needed impetus to coal production. Despite huge coal resources the country is currently facing huge fuel shortage. Post SC verdict, large scale structural reforms can be brought in coal sector by bringing amendments in Coal Mines Nationalisation Act (CMNA) (enacted in 1973), which should allow state governments, their enterprises, joint ventures and private companies to be eligible for coal mining.
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