Sale of 11 Coal Mines Makes States Richer by Rs 60,000 Cr

New Delhi: States including Chhattisgarh, Jharkhand and West Bengal are set to get nearly Rs 60,000 crore from 11 coal blocks sold in the ongoing auction, a top official said on Wednesday.

The total number of blocks sold so far is 12 with Essar Power MP Ltd bagging the Tokisud North mine in Jharkhand on the fifth day of the coal auction on Wednesday. However, the revenue accruing on account of the 12th block sale could not be immediately obtained.

The government is auctioning the coal blocks after the Supreme Court cancelled allocation of 204 mines in September last year. It has put 19 mines on block in the first tranche.

GMR Chhattisgarh Energy, Reliance Cement, Sunflag Iron and Steel, CESC, Hindalco Industries, Jaiprakash Associates and Balco are among the companies that bagged 11 coal mines in the previous four days of auction.

"These are estimates....The revenue to be accrued to the states would be to the tune of about Rs 59,000 crore (including royalty) and this we are taking for about 11 mines (auctioned till yesterday)," Coal Secretary Anil Swarup told reporters here.

"Essar Power MP Ltd won Tokisud North mine (in Jharkhand) for power sector. The price at which the mine closed was Rs 1,110 (per tonne)," a Coal Ministry official said.

Auction of another mine, Gare Palma IV-5 is underway.

Tokisud North mine has extractable reserves of 51.97 MT, while Gare Palma IV-5 mine has extractable reserves of 50 MT. The firms that were vying for Tokisud North mine include Adani Power Ltd, Balco, D B Power, Dhariwal Infrastructure Ltd, GMR Chhattisgarh Energy Ltd, GVK Power Goindwal Sahib Ltd, India Power Corporation Haldia Ltd, Jaiprakash Power Ventures Ltd, Jindal Power Ltd, Lanco Amarkantak Power Ltd and The West Bengal Power Development Corp Ltd.

The companies that are bidding for Gare Palma IV-5 mine include Ambuja Cements Ltd, Balco, Hindalco Industries, Monnet Ispat and Energy Ltd, Rungta Mines Ltd, Sarda Energy and Minerals Ltd and Sesa Sterlite Ltd.

He also added that bidding price in the future for schedule III (ready to produce) mines  would come down.

"I admit that prices will go down subsequently because of two reasons. First, because the work has to be done and secondly, because there is a great demand at this point of time and once the demand keeps getting met...obviously the price will come down," he said.

So far, 12 companies which have won 12 mines are Essar Power MP Ltd, GMR Chhattisgarh Energy, Reliance Cement, Sunflag Iron and Steel, CESC, Hindalco Industries, Jaiprakash Associates, Durgapur Projects, B S Ispat, Balco, Jaiprakash Power and OCL Iron & Steel.

The three mines on offer on Thursday are Bicharpur mine in Madhya Pradesh (for non-power sector), Gare Palma IV/2 and IV/3 blocks in Chhattisgarh (power sector).

The companies in the race for Bicharpur mine are ACC Ltd, Birla Corporation Ltd, Hindalco Industries, Hindustan Zinc, Jaypee Cement Corp, Monnet Ispat & Energy, OCL India Ltd, OCL Iron and Steel Ltd, Rungta Mines Ltd, Sarda Energy and Minerals Ltd and UltraTech Cement Ltd.

The companies vying for Gare Palma IV/2 and IV/3 mines are Adani Power Maharashtra, D B Power, GMR Chhattisgarh Energy Ltd, Jindal Power Ltd, Jindal India Thermal Power Ltd, JSW Energy Ltd, KSK Mahanadi Power Company Ltd, Reliance Geothermal Power Pvt Ltd and Sesa Sterlite.

Meanwhile, the coal ministry today said that it has decided to cancel the process of allotment of 36 coal blocks to be given to central and state PUs.

"Nominated Authority is hereby directed to initiate the process of allotment of 43 coal mines," it said.

Of these 43 mines, 42 are marked for the power sector and one for steel sector.

Rating agency Crisil said on Wednesday that participants at the ongoing auction of mines are facing difficult choices, as outcomes will redefine their cost structures and profitability in the short term, even as they ensure fuel security and sourcing flexibility over the long term.

"For the regulated power sector, the allocation of blocks will lead to a four-fold increase in captive coal availability to around 100 million tonnes over the medium term. This will improve the plant load factors (PLFs), but aggressive bidding will be a credit negative," it said.

"In the unregulated sector, steel and aluminium makers that win coal blocks will have a better handle on profitability than cement producers because coal accounts for a third of their production cost compared with 10-15 per cent for the latter," it said.

"Operating margins, however, will be impacted if the final price paid is too high. And for companies that fail to win back coal blocks, profitability will be dented," it added.

According to India Ratings and Research, developers are quoting negative final price offers in the reverse auction process, for coal blocks earmarked for the power sector, implying zero fuel cost pass-through.

While this is beneficial for the end consumers and the state governments, the same has the possibility of negatively impacting the financial profiles of the developers.

In the reverse bidding, the government sets a ceiling price, which represents the coal cost of Coal India, and the bidders are required to bid lower than the ceiling price. The bidder which has the bid the lowest gets the mine. The last day for the auction of first lot of mines is February 22.