Cos can't pass higher bidding price to users: Coal secy

He also added that there is a possibility of more than 74 coal blocks being auctioned or allotted in this financial year.

Below is the verbatim transcript of Anil Swarup's interview with Latha Venkatesh, Sonia Shenoy and Pragya Bharadwaj on CNBC-TV18.

Latha: Just a few more details would help definitely for the bidders, any details that you can give us on the methodology of finalising the floor price?

A: You will have to wait for some more time because it is being discussed and a decision will be taken at an appropriate level but I can assure you, you will get to know it by December 22, the day on which tenders are to be released and the bidders will have sufficient time to absorb what we have to say and then bid.

Latha: But it would be something like a revenue share, what would be the basis on which the floor price would be? Would it be a price?

A: I would only make one statement here. The bottomline is as I mentioned yesterday, we are working on a formulation where we can hold the tariff. So that the tariffs don’t increase. There are two-three models that are being considered right now, that is why I don’t want to discuss it here. Once it is finalised, I will be before you and explain to you what the formulation is.

Sonia: What is the mechanism that is being put in place in order to protect the power consumers? If you could just give us more details on that?

A: As I have been repeatedly saying that we will not allow a pass through to an extent to allow the existing tariffs to go up. So if there is any additional cost, if the bidder does bid higher than what is the cost then the bidder will have to absorb that cost in the tariff itself. That is the formulation that we are working on. How it will pan out? Only time will tell. As I said, we are discussing that and that formulation - we will come to you once the decision is taken on that which will certainly be before December 22.

Latha: Are you involving the banks or the finance ministry as well in this conversation because a lot of power companies are full up in terms of their exposure, banks have been very wary of lending to power companies, therefore is there any involvement of that side in establishing the auction price for coal blocks for power companies?

A: As I said these guidelines have been thrown open to suggestions from any segments. It is not limited to any segments and we hope that we will get suggestions from all the stakeholders including the banks and then we will consider those suggestions. The idea of this is unprecedented, of first announcing draft guidelines, taking suggestions and then taking a final call. So we hope that we will be able to get some useful inputs which can be considered by the government and if the suggestions are found appropriate, they will be incorporated to the guidelines.

Latha: Are all the people who are eligible now with you because the rules had said that for schedule II coal blocks if an expenditure of 80 percent of the total project has been made then they become eligible, are all the eligible candidates now with you, there is no-one still waiting to come in? Are all the eligible coal blocks are now known to you? You had said that under schedule II, expenditure should be more than 80 percent and under schedule III, the number should be over 60 percent investment.

A: That is the investment. The idea here is that someone should not take a block and sit on it. He should be in the need of coal and he should have clearly demonstrated end-used plant available for them to use coal. In the past, there have been these complaints that people have taken the block, they have not developed it and they had been sitting on it. Here we want that end-user to demonstrate his capability to use coal as and when he gets the block and for 42 why we said 80 percent because we feel that these 42 blocks mining is already happening. So any one who has put in 80 percent would be able to use coal immediately. For the other 32 blocks where we have an investment limit of 60 percent, we feel that it may take about two-four months time to get the mining going by which time we would assume that the plant would be ready to consume coal. So the whole idea here is to ensure that the coal that gets out, it gets out quickly and it gets used by the end user.

Pragya: While we understand that the end-use will be the same for a lot of the categories, if somebody is selling the power within the power space on a merchant basis, he will be able to bid more aggressively compared to someone who is in a fix tariff or a regulated tariff kind of place, so don’t you think those guys will be at a disadvantage for a similar coal block, how is the government looking to address the situation?

A: You can rest assure that anyone who is bidding for the block will have to give us a commitment that if the cost of the coal is less than what he has factored in his mechanism already, he will have to pass on that benefit to the consumer. That is how we are working on the formulation.

Pragya: You have also indicated that the price of the end-used tariff will have to be constrained at a certain point. So if there is a long-term PPA that has already been signed at a certain cost, will the government look to explore and change those conditions of the PPAs? Is that even on the table?

A: No, we will not. The concerned bidder will have to take a call that this is the price of the coal that he will get then he has to take a call whether he wants this coal because if he bids at a higher price then he has to absorb that cost, he cannot pass on that cost to the consumer.

Pragya: The other thing that you spoke about yesterday is that a lot of the people within -- if in the past it has been bid competitively and a lot of the power plants were bid competitively after 2007, there will be a case or a provisioning to allocate coal blocks to them. Don’t you think that will open a whole host of Pandora’s box as well because in the past a lot of these guys especially within the IPPs had bid aggressively and today they are stranded for the lack of feasibility on that project. Do you think that allotting them coal blocks even if the power project was bid competitively is even a case on the table, don’t you think that we will still go back to where we started from?

A: No, I see the allotment will happen only to government entities. Allotment will not happen to the private sector. Private sector will have to bid. So the two cases are absolutely different. While bidding, I am hopeful that having learnt from the past, the bidders will take into account the cost of coal that will happen and accordingly bid. So if they bid very aggressively then it may become uneconomic for them and if they bid low then they will not be able to -- they will have to pass on this benefit to the consumer. So that is the formulation that we are working on to see that the ultimate consumer of power does not get adversely affected through these auctions and if there are any benefits, they shall be passed on to the consumers that is how we are going to work it out.

Pragya: So the allotment to the public sector enterprises or the government owned entities will happen out of these 74 which are operational or close to operational coal blocks or will you explore that entire 160 also?

A: Right now we are looking at the 74 blocks, we are identifying such blocks that would be allotted as also such blocks that will be put on auction.

Pragya: But if the allotment happens out of those 74 then the number of coal blocks applicable for auction will really be limited again leading to that aggressive bidding etc and the whole cycle starts again. Is the split clear, how many are allotted, how many are auctioned?

A: Though we have not frozen on a number it could be around 50-50. But let me also tell you that we are not merely restricting to these 74 blocks, an exercise is also underway. If we can cull out some more blocks out of the remaining 130, which can also be put to auction, the idea here is that the power industry should not be strapped for coal, that is the whole idea. We started with 74 where there is total clarity but the team is looking at the remaining 130 also to see if we can add to these blocks so as to ensure that sufficient coal becomes available to the power industry.

Latha: Even that 130 would be allotted and auctioned public and private?

A: Yes.

Latha: And that split also could be 50-50?

A: I don’t know, here some exercise has been done for 74 so I can give you a broad number though we have not finalised as yet how many will go to public and how many will go for auction. But 130 the exercise is still on. Number is not a big deal, we can come to a number because rest of the processes are complicated. Arriving at a number there to be auctioned is not that complicated. It was when we did this exercise with 74, we did discover that there could be certain segments which may be strapped for coal so then we asked the team to look into the remaining 130 and see if there are other blocks that are partly ready that could be included in the first round of auction itself.

Latha: So the timeline that you gave yesterday up until March 2015 is for the 74?

A: It would be for 74 but if we want to add more blocks, I don’t have to do anything additional. I just have to find out that these are the blocks and that’s it.

Latha: There is a very good chance that more than 74 will be auctioned or allotted in this financial year itself?

A: Yes, minimum is 74, the number could go up depending on how we see the situation emerging.

Q: When the coal ordnance had come, the one bucket that was spoken about by the government was power and the captive use of power. What is unclear right now is somebody who is producing aluminium but is an extremely power intensive industry, for them the cost of power could go upto something like Rs 2 but the end use product which is aluminium is a free market product. So they would actually end up bidding more aggressively for this bucket of power and captive use of power. Could you clarify on that?

A: Let me clarify very clearly, if the end use is non power generation then they shall not be a part of the power segment, they will be part of the aluminium segment or steel segment which is open auction and the process will be different.

So suppose someone has a captive power plant, he cannot bid as an IPP so that advantage will not be available to him.

Pragya: How are we looking to streamline the coal swapping bid because someone who has a power plant based out of Punjab but the coal block that he is looking at is primarily in the three states of Chhattisgarh, Jharkhand etc, then how will this coal swapping work?

A: It has to be the same company, let us assume has two power plants and he gets a new mine which is closer to a power plant. So he can swap the coal from one mine to the other in the sense that he will then not have to take the coal through long distances to service his power plant, so he can use that coal for another power plant of his which is stationed elsewhere.

Latha: Has the Sinha Committee submitted its report on the valuation?

A: No not yet. They have all the details from the companies, they are working on the details.

Latha: Any idea as to how that compensation will be calculated, the CAG had spoken of notional loss, what would be the method they will take to calculate compensation?

A: There are experts there in that committee looking into it, once they furnish the report we will come out with it. See there are a lot of activities which are taking place parallel and they will converge into the tender document well before December 22.

Latha: What is the interest shown by the states?

A: They are pretty interested, we are already getting letters from them, of course they will have to apply formally when we release the notice. They are very interested in getting coal blocks.

Latha: A week ago you said that you are getting close to giving us some idea as to how much Coal India’s output will increase on a yearly basis. You all have given us a five year target. Any parallel work is being done on that, how much might coal India increase output in a year?

A: If you recall the discussion the other day I said we will come out with a strategy paper within a months time and we spoke about a week ago so you will have to give me another three and half weeks more.