An index to determine the value of coal blocks

An index to determine the value of coal blocks

News:

1.  The High-powered committee suggested major changes in the coal block auction system.

Important facts:

2. The committee was set up last year to review the current process.

3. The Expert Committee to ‘report on the challenges faced by the current auction system and recommend changes’ was headed by Pratyush Sinha

4. Recently , the committee submitted its recommendations, which rest on four tenets-

• Ensuring transparency and fairness
• Equity development of coal blocks
• Early development of coal blocks
• Simplicity of implementation of the recommendations.

5. Recommendations of the Committee:

• Developing a Coal Index for determining the value of blocks and a revenue-sharing model with the States. Currently, the valuation is on the basis of the notified price of Coal India Ltd.

6. Scrapping the current practice of cancelling an auction if the number of bidders drops below three. In the previous auctions, majority of the blocks could not be allocated as the number of eligible bidders was less than three.

7. Only a default in achieving critical milestone should attract penalty against the earlier penalty for each default.

8. The proposed changes aim at:

• Introducing flexibility in the number of bidders
• Penalties for defaulting on milestones
• Project execution
• Relaxation to captive miners to sell some of the coal in the market.

9. Reasons for slower production from these mines:

• Aggressive bids by some of the bidders during auctions.
• Weak financial health of some of the coal-block winning companies.
• E-auctions failed to sustain interest after several blocks were taken at high prices.
• Companies which bought the blocks found it cheaper to import coal to meet their requirements rather than developing the mines.
• Production from the captive mines which were auctioned had remained lower than their pre-auction output.