Cabinet committee approves auction method for coal blocks

Coal ministry directed to follow environment ministry guidelines on inviolate areas, forests and wildlife habitats

By Anupam Chakravartty
Published: Tuesday 24 September 2013

The controversy over the allocation of coal blocks to private firms during the UPA regime appears to have egged the government to change the coal allocation process being followed since Independence. Firms allotted coal blocks earlier simply sat on them, causing losses to government which had given away the blocks cheap saying it was to improve power production. On Tuesday, the Cabinet Committee of Economic Affairs (CCEA) cleared the auction methodology for allocating coal blocks to private steel, cement and power firms. For the first time, coal reserves up to 2,000 million tonnes will be auctioned through a competitive bidding route, coal minister Sriprakash Jaiswal said. 

As opposed to the earlier practice of referring coal block allocation to a panel of government functionaries, a process deemed “opaque” by the Comptroller Auditor General (CAG) in a report in 2012, CCEA has allowed the coal ministry to issue licences to private companies based on competitive bidding. The successful bidders will have to share the revenue with the state governments, which will be done on actual production of coal as opposed to the earlier proposal of sharing the profits, the minister said.

Tariff-based bidding for power firms

For power companies, a tariff-based bidding system has been proposed under the draft policy approved by CCEA. Coal ministry officials said that power suppliers will have to pay a one-time “reserve price” that could be 10 per cent of the estimated reserves in the coal block, valued at cost of mining of an equivalent grade in international markets. “This could bring down the cost of power production,” said a coal ministry official. The ministry also proposes to fix a floor price for auction to steel and cement companies.

Successful bidders will be penalised if they surrender blocks without performing detailed exploration, purchasing geological report and submitting mining plan. According to the draft policy, the firms will also have to obtain mining lease from respective state governments.

In the beginning only four to six blocks with known reserves will be auctioned. During consultations with various ministries while making the draft for the new coal distribution policy, the environment ministry has also asked the coal ministry to bid only coal blocks that are not in “in-violate areas” like dense forests, wildlife or bird sanctuaries, tiger reserves and elephant corridors. CCEA has asked the coal ministry to follow the environment ministry's guidelines for the same.


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