Coal mining: Govt to ease revenue share, prior experience conditions

The government is apparently going the whole hog in removing the impediments to investments in coal mining. Close on the heels of a Cabinet decision earlier this month to remove end-use restrictions on miners in the sector that virtually abolished the concept of captive coal mining, the Union coal ministry has now floated a discussion paper that proposes to do away with the requirement of prior experience for prospective bidders for coal blocks. Also, the paper says that the revenue which developers need to share with the states will not be linked to coal prices quoted by state-run Coal India (CIL). Private players had earlier raised objections to these two conditions and cited them as reasons for their showing little interest in the sector.

The coal ministry also said that it is developing a ‘National Coal Index’ to fix the price of coal for commercial mining, which would include a weighted combination of monthly prices of coal in various channels of transaction.

The Cabinet, in February, 2018, had approved the methodology for auctioning commercial coal mines to the private sector, but there was not much clarity on the pricing mechanism or the necessary experience required to participate in the auctions. Plus, it was then decided that the mines will be awarded to the company quoting the highest commission (in `/tonne basis) to state governments. It has now been proposed that the percentage share of revenue payable to the government will be the new bid parameter.
In an earlier discussion paper on the subject released in 2017 by the government, it was proposed that revenue share will be calculated on the basis of actual production multiplied by 1.2 times the CIL price. Potential investors had then claimed that linking the revenue share with the CIL prices might not be a desirable proposition as it would not serve the purpose of making coal cheaper as CIL prices are always on the higher side.

The latest paper also elucidates other details related to the upfront amount payable by the developers, bid security amounts and incentives for early production and other such issues. Stakeholders will have to submit their comments on these proposals to the coal ministry by January 31.

As reported by FE earlier, the Cabinet decision dismantling the end use curbs could prompt domestic and foreign steel companies and also local power companies to take part in the auctions to be held to re-allocate the captive blocks cancelled by the Supreme Court in 2014. So far, only 89 of the 204 blocks cancelled by the apex court have been re-allocated — including 60 assigned to PSUs on a nomination basis and 29 auctioned off — and just 29 of them are operational. While steel and power firms have interest in coal mining as it gels well with their businesses if unhindered open market sales of surplus coal is allowed, they have been largely shying away from the auctions held so far — even 25% open-market sales allowed in February 2019 was not enough to kindle their interest in these coal blocks.
The Cabinet, via an amendment to the MMDR Act, also extended the policy of composite mining licence, now in force for unexplored blocks of most non-coal minerals, to the coal sector as well, adding to certainty of tenure from the prospecting to the production stages.

In a recent interview with FE, coal minister Pralhad Joshi said that depending on the industry reactions, his ministry was “even open to tweaking the commercial mining modalities which were cleared by the Cabinet in February 2018”.

Source: Financial Express