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Government to offer 4 big blocks to power companies in first ever coal bidding

NEW DELHI: The government will offer four big coal blocks in Odisha with collective reserves of 2,000 million tonnes to power companies by January next year in the country's first round of coal mine auction. The blocks will be awarded by the state to companies under a model similar to the ultra mega power projects where a firm that quotes the lowest tariff for electricity supply gets to develop a plant based on the mine. The allocations will be made after a gap of five years, as coal blocks have not been allotted to private firms after 2008. 

A senior coal ministry official said the coal ministry has identified four major coal blocks - Kordabehal, Brahmbil, Phuljhari East and Phuljhari West - in the Talcher coalfields of Odisha with 500 million tonnes reserves each. Besides, about six small coal blocks - three each for steel and 
cement sectors - have been identified for bidding, he said. "The ministry will start the country's first round of coal blocks allocation under the new model with power sector. We have earmarked four big blocks in Talcher for the power sector. There are 6 other blocks identified for cement and steel. We are working the economics for these and some of them could be bid out simultaneously in December or January," the official said. 

The blocks will be vetted by the environment ministry to check if they fall in ecologically sensitive 'inviolate areas' like dense forests, wildlife or bird sanctuaries, tiger reserves and elephant corridors. On Tuesday, the cabinet committee on economic affairs approved a methodology for auction of coal blocks. As per the policy, the government will auction coal blocks to private steel and cement firms on a production-linked payment basis similar to royalty paid by miners. Power companies that quote the lowest tariff for electricity supply will bag the mines. 

The government has identified about 12 coal blocks for award to power companies and about 24 for auction to private steel and cement firms and they would be put on block as and when their exploration is complete. The government has decided to auction only fully explored coal blocks with known reserves to private companies. Steel and cement companies that propose to pay the highest amount per each tonne of coal produced will bag the blocks. 

The ministry also proposes to fix a floor price for auction to steel and cement companies, below which bids will not be accepted. The floor price will be 10% of the estimated reserves in the block valued at cost of mining of an equivalent grade in international markets. Power firms will also pay the basic 10% value of the coal block. The selected developers who bag the coal blocks will be given deadlines to achieve milestones and the companies will be required to submit performance guarantees. The companies can, however, relinquish the blocks without penalty after carrying out detailed exploration. 

On July 3, the government allocated 14 coal blocks to state-run power companies including
NTPCBSE -1.14 % and Neyveli Lignite Corp to cater to 31,800-mw power generation capacity envisaged to be set up at an investment of Rs 1,60,000 crore.