The process of coal block auctions could get delayed if the exploration process is not done in greater depth and detail.
In addition to clarifying the policy for auctioning of the blocks, it is necessary to ensure that there is close monitoring on actions, lest implementation and ultimate availability of coal after development take many years.
Considering that the first round of auction happens in January, coal production from the mines would commence after about three-five years. “The coal auction mechanism is a long-term reform policy. The results would be seen by mid of the 13th Plan period,” said Salil Garg, Director (Corporates) India Ratings & Research.
It is rather important that a transparent system of allocation is evolved. Though, once it is seen to be implemented, one would have a better understanding of key variables adopted in the auction and allocation methodology.
The auctioning of coal blocks, which would be for first time in the country, would not be as easy as it looks. The biggest hurdle before the Ministry of Coal is most of the blocks are not explored.
This means the geological reserves underneath mother Earth in these areas are not known. In such a situation, how would one decide the reserve price to be paid by the winner of the blocks. It would also be tough on a bidder’s part to calculate the risk in the project.
“Yes, it is important before any resource auction that the exploration process is done methodically and as is done internationally. Most of the blocks have very scant exploration inputs and it would be very difficult for bidders to make a proper valuation basis such available inputs,” said Anil Sardana, Managing Director of Tata Power. A parallel can be drawn to the auction of oil and gas blocks under the New Exploration Licensing Policy (NELP) regime.
Auction
Till now, nine rounds of auction have been held. However, most of the global exploration giants shy away from India’s bidding for oil and gas assets. One of the primary reasons is that data on geological reserves in the acreages are not up to the mark.
Echoing similar views, K.V.B. Reddy, Executive Director of Essar Power, said the level of interest in bidding will be determined by how much is known about the block in terms of exploitable reserves and other technical information.
The appetite of power companies wanting to get coal blocks would also depend on factors such as financial health of independent power producers (IPPs) and interest of State Electricity Distribution Utilities to buy power on long-term contracts.
At present, bids for two ultra mega power projects of 4,000 MW each in Odisha and Tamil Nadu are also open.
“We still believe that overall, the level of interest in bidding for coal blocks by private sector is also linked to resolution of other problems facing the industry,” said Reddy of Essar Power.
The non-availability of fuel, particularly domestic natural gas, has made projects of many private power developers such as Torrent Power, Lanco Infratech, GMR and Essar Power, among others stranded.
This has made many of these companies seek deferment or rejig of loans.