NEW DELHI: The government is mulling slashing the upfront payments by up to half for successful bidders for coal mines.
In order to attract global mining giants to bid for auctions for Indian coal mines slated for later this year, the government may decide to relax end-use norms to allow miners to sell part of their coals in the open market as well as reduce the amount of money, which they have to pay upfront when awarded bids, said top officials.
With the important question of whether coal mining has to be perpetually tied to an end-use or freed up decided, they needed to re-tool their bidding norms keeping global norms and market requirements in mind, officials said.
Currently, miners have to pay 10 per cent of the estimated value of a mine upfront. “This huge pay-out, as well as clauses that only a steel mill or a cement factory can buy a mine, deters bids by the large mining conglomerates like BHP Billiton, Peabody Energy and Arch Coal …. Now that we have allowed 100 per cent FDI (Foreign Direct Investment) in coal mining we have to take a call on other important follow-up steps,” officials said, adding “We could go as far as cutting it down to five per cent.”
Officials pointed out that a round of auctions held in October was not very successful, with many coal mines left unbidden for. “Our experience is that interest in the half-a-dozen auctions held so far has been very tepid. One auction round had to be cancelled altogether ... so we need a rethinking on the norms and conditions. The question we have to address is what is holding back investments in this sector,” officials said.
However, analysts are of the view that the ‘dirty’ tag given to coal by the environmental lobby is also a deterrent for global investors to taking on new mines and the country may need to package the auctions with clauses asking bidders to produce clean coal, for which premium pricing incentives may need to be given.
India has the fifth-largest coal reserves in the world with an estimated 319.04 billion metric tons of the energy resource, however, most of it is of a quality inferior to China’s or Australia’s.