~By ABDUL SAYEED KHAN

2020: THE YEAR THAT WAS | Coal

India concluded its first-ever auctions for commercial sale of coal blocks based on the revenue-sharing model which also incorporated relaxations in entry barriers and end-user restrictions.

As per the new bidding parameters for these auctions, the earlier INR/tonne model was revised to one based on the percentage premium for share of coal that would be produced. Also, in the technical round, the floor price (in terms of revenue share) was fixed at 4% above which technical bids were submitted. Thereafter, the highest bid in the technical round became the floor price for the financial bid round against which the final price was quoted by bidders.

19 Blocks Enter Financial Round

The government had initially proposed 50 coal blocks for these auctions but, due to states’ resistance, it had to bring down the number to 38. Interest was shown in 23 blocks in the technical round, among which four blocks that received single bids were omitted from the list as they failed to realise the minimum bid criteria.

Eventually, 19 blocks entered the financial round of bidding from five states, namely, Madhya Pradesh, Jharkhand, Odisha, Maharashtra and Chhattisgarh.

A total of 76 bids were received in the technical round from 42 different companies, but only 14 emerged as winners at the end of the financial round of auctions carried out during November 2-9, 2020.

Upon analysing the nature of these companies, it was found that only few participants having end-use plants had shown interest in procuring the blocks, including the likes of Sarda Energy and Minerals, Hindalco, Vedanta, and Jindal Power.

On the other hand, almost three-fourth of the blocks were won by firms for commercial purposes. While there is no restriction on sale of coal from these blocks, it would certainly improve domestic coal availability and reduce the supply burden on Coal India Limited (CIL).

 

Key Findings from Biddings

  •  The auction itself was special for the kind of reception it garnered from the participants. Interestingly, smaller mines saw more aggressive bidding than the bigger mines, contrary to expectations as the major companies were competing for these bigger blocks.

Of the top five final price offers received for these blocks, excluding Gare Palma IV/7, rest of them have reserves lesser than 100 MnT.

  •  Some of the newcomers showed greater determination to procure the blocks for which they had submitted bids and were desperate to grab the opportunity in the final round.

Notably, Boulder Stone Mart acquired the Gotitoria blocks at a premium of 32.23% over the floor price by edging out the other seven bidders. Similar determination was also seen from Yazdani and Chowgule groups.

  •  Credit should also be given to the coal ministry in terms of selection of coal blocks which belong to the same coalfields, in order to incite higher participation for them.

As was the case with the Urtan and Urtan North blocks, which were both bagged by JMS Mining, who now has an advantage to carry out the mining operations by setting up the necessary equipment in close proximity.

  • Selective preference was seen for some of the blocks which hold additional benefits in order to create opportunities for swift commercial sales.

Andhra Pradesh Mineral Development Corporation claimed Brahmadiha block which has superior grade of coking coal, while the schedule-II blocks, including Gotitoria and Gare Palma, having the necessary clearances in hand to commence production, were also booked at fairly high final price offers.

  • Talking about potential game changers in the coal mining space, Aurobindo Realty and Infrastructure, Boulder Stone Mart and Essel Mining can emerge as major coal traders after securing two blocks each in the auctions.

Adani Enterprises seems to have been rather unfortunate in the financial bidding round, as it managed to win only a single block out of the seven in which it had contested.

Stratatech Mineral Resources, its subsidiary company, managed to grab the Dhirauli block which holds the highest coal reserve in the lot.

Ease Demand Pressure

All in all, these 19 coal blocks were booked at an average final price of 27.32% premium for share of coal that would be produced, which translates into a revenue share of INR 626 per tonne of coal production, considering the average representative price of INR 2,292/tonne for various non-coking coal grades.

Next, the nominated authority would recommend the selection to the government for approval. Thereafter, issuance of vesting order for these blocks is expected within two months, as per the revised schedule.

India has been dependent on CIL, and Singareni Collieries Company Ltd (SCCL) to a smaller extent, for its domestic coal supplies. The allotment of new coal blocks would boost the country’s coal production from other sources to feed the rising demand in recent years.

Coal Minister Pralhad Joshi, while speaking at a media briefing, said these blocks would infuse 51 MnT of coal into the domestic market and generate a total revenue of INR 6,636 crore annually.

While such volumes are not likely to have much impact on CIL’s dominance, it will certainly provide the customers a suitable alternative for meeting their coal requirements and in turn help the country in attaining the long-term objective of reducing costlier imports.