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Governance Bytes: Auction process of Coal blocks for Commercial mining

Auction process of Coal blocks for Commercial mining

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Auction process of Coal blocks for Commercial mining

In News:

  • Prime Minister Narendra Modi has launched the auction process for 41 coal blocks for commercial mining, a move that opens India’s coal sector for private players.

Background:

  • Despite hosting the world’s fourth-largest coal reserves, India imports around 235 million tonnes (mt) of coal a year (which makes it the second largest coal importer), of which around 135 mt worth ₹1.71 trillion could be sourced locally.
  • In auctions till nowonly end users of coal, such as companies in the iron and steel and power sectors, were permitted to bid on coal blocks.
  • Going forward, there will be no restriction on the sale and utilization of coal from the mines.
  • Earlier, blocks were awarded on a fixed payment per tonne basis, which the government believed was hurting production. Thus, mines will now be auctioned on a revenue sharing basis under a simplified regime to increase ease of doing business.

News Summary:

  • The coal block auction process for commercial mining will be a two-stage tender process with technical and financial bidding.
  • The coal mines being auctioned are located in Chhattisgarh, Jharkhand, Madhya Pradesh, Maharashtra and Odisha.
  • The auction of 41 coal blocks, is expected to attract Rs 33,000 crore in investments, with private miners sharing revenues with the government.
  • The Prime Minister also announced that the government would invest Rs 50,000 crore on infrastructure for coal extraction and transportation.
  • Upon attainment of peak rated capacity of production of 225 million tonnes (MT), the government said, these mines will contribute about 15% of the country’s projected total coal production in 2025-26.
  • Further, the tenure of coking coal linkage in the non-regulated sector linkage auction has been increased up to 30 years.

Potential Benefits:

  • India is expected to save around Rs 30,000 crore annually on import bill of thermal coal on account of commercial mining of blocks.
  • As the entire revenue from the auction/allotment of coal mines would go to the coal bearing States, the increase in revenue can be utilized for the growth and development of backward areas and their inhabitants including tribal.
  • The reform would make the coal sector self-reliant and benefit other sectors, including steel, aluminum, fertilizer and cement, along with giving a boost to power generation.
  • It will enable the country to achieve self-sufficiency in meeting its energy needs and provide thrust to economic development and employment generation.

New methodology for revenue-share:

  • As per the new methodology, the bidders would be required to bid for a percentage share of revenue payable to the Government.
  • The floor price shall be 4% of the revenue share and bids would be accepted in multiples of 0.5% of the revenue share till the percentage of revenue share is up to 10% and thereafter bids would be accepted in multiples of 0.25% of the revenue share.
  • The new methodology also provides incentives to the successful bidder by offering rebates in revenue share, in case of early production of coal from the coal mine.
  • An upfront amount will also need to paid (about 0.25% of the value of estimated geological reserves of the coal mine) in 4 equal instalments.
  • The methodology is oriented to make maximum coal available in the market at the earliest and it also enables adequate competition which will allow discovery of market prices for the blocks and faster development of coal blocks.

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