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Monday, April 23, 2012

No Free Mines with UMPPs Anymore

Coal ministry finalising norms for calculating the reserve price for the mines, bidding norms and a model agreement

Bidders for upcoming ultra mega power plants in Odisha and Chattisgarh will have to pay a reserve price to the state government for coal mines that come bundled with the project, ending a long established policy regime in which the mines were allotted free. The coal ministry is in the process of finalizing norms for calculating the reserve price for the mines, bidding norms and a model agreement for which it has received expression of interest from consultants, coal secretary Alok Perti said. The ministry plans to finalize these guidelines by September this year.

The new norms will change the economics of large power projects known as ultra mega power projects as they have till now been awarded based on the electricity tariff, while the mines came free. The coal ministry has been working on a series of policy initiatives to ensure transparency in allocation of coal blocks, particularly to industries like steel and power which are eligible for captive mines. Earlier, blocks were nominated to projects keeping in mind fuel requirement and its location. However, this has been discontinued and the government will now give blocks on captive basis only through the auction route, Mr Petri said.

The decision to charge for the mines comes in the backdrop of the recent controversy over allocation of spectrum in the telecom sector in 2008 at prices fixed in 2001 and a controversy stirred by a leaked draft report of the Comptroller and Auditor General (CAG) over alleged losses incurred by government in giving out mines. The CAG had reportedly alleged that private companies, who had been allotted coal blocks without bidding, might have made windfall gains at the cost of government-owned Coal India.

The supreme court judgment in the 2G case is very clear on how natural resources are to be given out and exploited.We had already adopted some of these measures in the auctioning rules and it will borne in mind for all further allocation, the coal secretary said.ET had earlier reported that the coal ministry has identified 54 coal blocks that would be given out for mining. Apart from selected industries, mines would also be allotted to state-run mining companies, he said.

On the recent controversy over coal allocation to power projects by CIL where the government had to resort to a presidential decree to force the public sector company to fal in line, the secretary said that it was unfortunate. The MOU and risk factors mentioned in the RHP is well documented and a public sector organization has to abide by those norms. It was known to the independent directors as well, he said.

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