New Delhi: The Cabinet Tuesday approved the methodology for auctioning coal blocks, providing for upfront and production-linked payments and benchmarking of coal sale prices.
Coal blocks will be put for auction after the environment ministry reviews them and bidders have to agree to a minimum work programme, according to an official statement.
"CCEA has approved the methodology for auction by competitive bidding of the coal blocks. The methodology provides for auctioning the fully explored coal blocks and also provides for fast tracking the auction by exploration of regionally explored blocks," the statement said.
The policy will ensure greater transparency and will pave the way for the government to auction explored blocks.
"The process of bidding of coal blocks will be started very soon. The government has fulfilled its commitment to bring transparency in the allocation of coal blocks," Coal Minister Sriprakash Jaiswal said.
A source said six explored blocks will be auctioned first, with estimated reserves of over 2,000 million tonnes.
The policy provides for production-linked payment on a rupee per tonne basis, plus a basic upfront payment of 10 percent of the intrinsic value of the coal block.
The intrinsic value will be calculated on the basis of net present value (NPV) of the block arrived at through the discounted cash flow (DCF) method, the statement said.
"To benchmark the selling price of coal, the international FoB (freight-on-board) price from the public indices like Argus/Platts will be used by adjusting it by 15 percent to provide for inland transport cost which would give the mine mouth price," it said.
To avoid short-term volatility, the average sale price will be calculated by taking prices of the past five years.
For the regulated power sector, a 90 percent discount will be provided on the intrinsic value. This will help to rationalise power tariffs, the government said.
To ensure firm commitment, there will be an agreement between the ministry and the bidder to perform minimum work programmes at all stages.
There would be development stage obligations in terms of milestones to be achieved such as getting mining leases and obtaining environment/forest clearances, while the bidder will have to give performance guarantees.
The policy also provides for relinquishment of a block without penalty if the bidder has carried out the minimum work programme stipulated in the agreement.
According to the statement, the Ministry of Environment and Forests will review details of coal blocks and communicate its findings before the areas are put to auction. Final clearances will be subject to statutory approvals.
The government said exploration activities in identified blocks are at an advanced stage and are likely to be completed soon. They will be auctioned under the Competitive Bidding of the Coal Mines Rules, 2012, according to the statement.
The Comptroller and Auditor General said in a report that allocation of coal blocks between 2004 and 2009 without auction resulted in "undue benefits" worth Rs 1.8 lakh crore to private entities.
This led to a furore in Parliament, with opposition parties seeking a probe into the matter. The CBI is investigating the issue.
The government allocated 14 coal mines to central and state public sector units, including four to NTPC, in July.
It had planned to auction 54 coal blocks with total estimated reserves of about 18 billion tonnes.