Coal block auction to have cushion against tariff shock

NEW DELHI: The government will protect power consumers from getting a tariff shock from coal block auction and cap the number of mines or quantity of reserves that goes to one entity with a view to prevent a monopoly scenario.

“It (auction) is not a revenue-maximizing approach … the essence is to keep a lid on tariff … if not eliminate, alleviate coal supply position,” coal secretary Anil Swarup said on Wednesday, after the coal ministry invited comments from stakeholders on draft norms for auctioning coal blocks.

The ministry is looking at inviting requests for proposals from prospective bidders on December 22 and inviting bids by February 3. Bids will be in two stages — technical and financial. Final bidders will be qualified on the basis of their technical bids by March 3 and financial bidding will get going on March 6. Allocation letters will be issued to successful bidders on March 16.

“It is a work in progress. This is the first time such an exercise is being undertaken. But, we will come out with a clear, transparent process within the stipulated time. There could be some unforeseen issues but for now this is the timeline we have set,” Swarup said.

The Supreme Court had in September cancelled allocation of 204 blocks. In the first lot, 74 blocks are being put on the block. Forty-two of these are in production and 32 are expected to start operations soon. Together, the 74 blocks have the potential to produce 110 million tonnes of coal per year.

Swarup said separate teams were discussing options to deal with various issues. A mechanism would be put in place to protect power consumers. Options could include limiting the “pass-through” — or how much cost a bidder is allowed to pass through to electricity consumers — so that tariffs do not rise.

He said only companies with specified end-use plants for producing power steel, cement or sponge iron would be eligible to bid. A successful bidder will be allowed to use coal from the auctioned mine in the group’s similar end-use plant, with prior government permission.

Companies engaged in specified end-use, including companies with coal linkage or pending application for linkage, will also be eligible to bid for one of the 42 producing mines if they have already invested 80% of the cost of the end-use plant.

Companies engaged in specified end-use shall be eligible to bid for any of the soon-to-produce mines, provided they have already invested 60% of the project cost into the end-use plant.

Swarup said even companies with plants based on imported coal would be eligible to bid for a block.

According to the draft rules, the government could also allot any block out of the 204 to a company that has been awarded a power project based on competitive tariff bid on the power ministry’s recommendations. State or central government entities too would be eligible to bid for a block, even though they can seek a mine under the government dispensation.