Fuel Framework: Coal mining auction update

Coal mining auction update

In 2020, in a key reform move, India opened up the coal mining sector to private players for commercial extra­c­tion with an investor-friendly framework such as reduced upfront payments, re­laxed payment schedules and rebates in revenue shared with the government for early production. The first auction of commercial mines was launched by the central government in June 2020 and concluded with the allocation of 19 coal mines. Till date, a total of 42 coal mines with a cumulative peak rate capacity (PRC) of 86.404 million tonnes per ann­um (mtpa) have been auctioned under the commercial coal mine auction pro­ce­ss, across three tranches. The fourth tra­nche of auction is currenlty underway.

A quick update on the commercial coal mine auctions so far…

Recap of auctions conducted so far

Commercial coal block auctions are being conducted under the Coal Mines (Special Provisions) Act and the Mines and Minerals (Development and Regul­a­tion) Act in a two-stage online bidding process, which involves technical scr­een­ing and submission of competitive initial price offers in the first stage, and a second and final stage where better price offers are intended to be received. The methodology has been formulated to encourage adequate competition and private sector participation through a number of enabling measures, including no end-use restrictions (the private sector can mine coal commercially without any end-use restrictions) and a revenue sharing mechanism (instead of the earlier regime of fixed rupee/tone, revenue sharing will be on an ad valorem basis and not on the basis of a fixed amount).

The auctions were launched in June 2020, with 38 blocks in the first tranche. Of these, the auction process for 19 blocks was completed in November 2020. These blocks had winning perce­n­tage revenue shares ranging from 9.5 per cent to 66.75 per cent. The total annual revenue generation from these auctions was estimated at around Rs 66.56 billion, considering an aggregated PRC of 51.05 mtpa. In the second attempt, held on June 2021, one additional mine was successfully re-auctioned, taking the total coal mines auctioned in the first tranche to 20.

In the second tranche, 67 coal blocks were put up for offer in August 2021, whi­ch had a PRC of about 150 mtpa. However, the response to this round was tepid, with only eight blocks being successfully auctioned in this round. In a second attempt in Mar­ch 2022, four mines were re-auctioned. With this, the total number of mines auctioned in this round stood at 12.

In October 2021, the third tranche of auctions was initiated, with 88 mines on offer and an annual PRC of 282 mtpa. Many mines in the list were “roll over” mines, which had not found bidders in the previous two rounds. Of the listed blocks, 10 were auctioned in this round by February 2022.

Thus, so far, a total of 42 coal mines have been auctioned till date, with a total cumulative PRC of 86.404 mtpa. These mines are spread across seven coal bearing states of Jharkhand, Chhattisgarh, Odisha, Assam, Arunachal Pradesh, Ma­dh­ya Pradesh and Maharashtra.

Ongoing bidding

In December 2021, the fourth tranche of auctions was initiated with 99 mines on offer. Of these, 24 are new coal mines wh­­e­reas the remaining 75 are roll over mines from the earlier round of auctio­ns. Of the total 99, 59 are fully ex­plored mi­nes and 40 are partially explored, spread across the eight coal bearing sta­tes of Jharkh­a­nd, Chhattisgarh, Odisha, Madhya Prade­sh, Maharashtra, West Be­n­gal, Andhra Pradesh and Telangana.

As of March 2022, a total of 26 bids have been received for the auction of 11 mines. Two or more bids have been received for five coal mines. The Gare Palma IV/6 mi­ne in Chhattisgarh received a maximum of eight bids. Utkal B1 and B2 mines in Odisha received six bids, while Chinora in Maharashtra and Rabodih OCP in Jh­ar­khand got four and three bids respectively. Players that have shown interest in this round include JSW Steel Limited, Jindal Steel & Power Limited, Shyam Metalics & Energy Limited, Sarda Mines Private Li­mited, and Mahanadi Mines and Mine­rals Private Limited.

The way forward

The coal ministry’s view is that coal mine auctions would create a marketplace for the dry fuel with multiple producers to drive competition, and are ex­pected to encourage transparent pricing of coal, based on market forces. Going forward, it is anticipated that private coal mines will provide 350-400 million tonnes of coal by the end of this decade. The projected increase in production will help the country reduce its reliance on imports. To conclude, commercial coal mine auctions are an important step towards increasing the availability of coal and reducing coal imports. How­ever, the successful and timely execution of auctioned blocks would be crucial to help bridge the coal demand-supply gap going forward. N