Moneycontrol
Apr 21, 2017 04:30 PM IST | Source: Moneycontrol.com

Companies meet govt officials, seek relaxation on commercial coal mining clauses

Modi government plans to open up coal sector for commercial mining to private players has failed to evoke keen interest from potential players.

Companies meet govt officials, seek relaxation on commercial coal mining clauses

Sandeep Sinha

Moneycontrol News

Representatives of the mining industry met with officials of the government recently on the issue of commercial coal mining, seeking relaxation of certain clauses that they say would help kick off the government's reform in opening up the coal sector.

The Narendra Modi government's plans to open up the coal sector for commercial coal mining, billed as a key reform for the industry, has evoked response from companies, who want the government to allay

In 2015, the government opened up the space, inviting companies to bid for mines for commercial exploitation -- a move that had been disallowed for over four decades.

Previously, only state-owned Coal India was allowed to mine for coal, while private players were allowed only if they were willing to operate captive mines to feed their power, steel or cement plants.

At a meeting held on April 10, 2017, between the Coal Ministry and the stakeholders on the discussion paper relating to ‘auction of coal mines for commercial mining’ they put forward their views and concerns on the following subjects.

The meeting was attended by senior representatives from the coal ministry, private sector companies like Hindalco, Adani Enterprises, JSPL, JSW Steel, GMR, Tata Steel, ASSOCHAM and SBI Capital Markets.

Eligibility Criteria

Some participants felt that the net worth requirement of Rs 1,500 crore as eligibility criteria need to be brought down, ensuring more participation in the auction process.

They also enquired about the basis for selecting only a few ores/minerals for the purposes of material handling experience and demanded the inclusion of other major minerals in the list of minerals for greater participation in the auction process.

They also enquired whether material handling experience include lignite for the purpose of determination and in light of the fact that the Honourable Supreme Court had cancelled some earlier allotted coal mines and earlier de-allocation of iron ore mines in Karnataka and Goa, a longer time period should be considered for material handling experience instead of the present stipulation of the last 3 consecutive financial years.

Revenue Sharing Model

Some participants said that linking revenue share at 1.2 times to Coal India Limited (CIL) notified price might not be a desirable choice as they are already on the higher side and defeat the objective of making coal available cheaper.

The participants also said that Coal India’s notified price varies across sectors and its subsidiaries and that requires clarity on which notified price will be considered for estimating the revenue share. They also stated that it is difficult to predict the revision in Coal India notified price over a period of 30 years since there is no set pattern or scientific method available for the bidders to arrive at an estimate of Coal India’s notified price in future.

It was suggested that the calculation of revenue be done on the basis of the peak rated capacity (PRC) multiplied by the CIL notified price to be published in the bid document for the first year and thereafter be linked to the WPI / CPI indices, the minutes said.

Participants also added that, alternatively, the revenue for subsequent years can be escalated by a fixed percentage to be declared upfront in the tender document. Such a formulation may provide a reasonable amount of accuracy for the bidders to forecast their costs on account of revenue sharing over the life of the mine and enable bidders to bid accurately and avail bank financing.

The Centre had in March floated a discussion paper detailing key features of the planned auction process under the provisions of the Coal Mines (Special Provisions) Act of 2015 inviting comments from stakeholders.
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