Government Issues Guidelines For Auction Of Coal Mines To Private Firms

A week after the government of India announced, in a historic decision, that private and foreign firms will be permitted to bid for coal mines in India, the guidelines for such bidding have been issued.

The guidelines, that provide for opening up of India’s coal sector, indicate that the highest price bid will be successful, there will be no restriction on the sale or utilisation of coal from the mine, there will be production flexibility and measures to capture windfall gains.

Here are the key features as per the circular issued by the Ministry of Coal on Feb. 27...

• It will be an ascending forward auction.
• Floor price shall be determined as per a December 2014 circular.
• The highest price offer will win the auction.
• There shall be no restriction on sale/utilisation of the coal.
• Successful bidder shall have production flexibility.
• But production cannot drop below 50 percent of production as per mining plan.
• And in any five year block, at least 70 percent of the production, as per mining plan, will have to be mined.
• In order to capture revenue upside due to increase in coal prices there will be an annual adjustment of the final offer price linked to the Wholesale Price Index of coal (relevant grade).
• Up to 100 percent foreign direct investment may be allowed in coal mining activities including associated processing infrastructure.
• Relevant environmental norms will apply to the washing of coal.

The Ministry has yet to publish details regarding the mines to be auctioned for sale of coal and their time schedule.