The Indian Ministry of Coal has released an Approach Paper for auctioning of coal mines under the Coal Mines (Special Provisions) Ordinance, 2014. The Ordinance was promulgated in October this year. The Coal Mines (Special Provisions) Bill, 2014, which seeks to replace the Ordinance, has already been steered through in the Lok Sabha but faced opposition in the Rajya Sabha where the BJP-led NDA government is in minority.

The Approach Paper released by the Ministry of Coal is primarily for public consultation prior to preparation of the tender document for auctioning of coal mines under the Ordinance.

As per the Approach Paper, the auctioning of coal mines will be conducted through the process of electronic auction. The methods to be adopted include forward bidding and reverse bidding. The method of forward bidding will be adopted if the specified end use is production of iron and steel, generation of power for captive use and cement. Where the specified end use is generation of power, the method of reverse bidding will be adopted.

The bidding process will consist of two stages – technical bid for the purpose of qualification and financial bid for determination of the successful bidder. In the qualification stage, bidders will have to submit their technical and financial qualifications and the indicative price offer. The Approach Paper explains the process to be followed for evaluating technical capacity of bidders at the qualification stage. The indicative price offer of only the pre-qualified bidders shortlisted after evaluation of technical capacity will be opened and then ranked on the basis of diminishing or increasing price offer.

The indicative price offer refers to the bid price per tonne of coal produced. The bid price has to be above the floor price in case of forward bidding or below the ceiling price in case of reverse bidding. The floor price and the ceiling price for the coal mine along with the methodology for fixing the same will be mentioned in the tender document.

In the financial bid stage, the top 50 per cent of the ranked pre-qualified bidders will participate in the e-auction. The applicable floor or ceiling price will be the highest or lowest indicative price offer received from the prequalified bidders. The bidder who quotes the highest or lowest bid price, as applicable, will be declared the preferred bidder. In the event the preferred bidder refuses to accept the coal mine, the bidder ranked second will be asked to match the preferred bidder. If the bidder ranked second fails, the one next in the ranking will be asked to match and so on. If no bidder agrees to match, the coal mine will be put up for rebidding or go back to the government.

In addition to giving a brief description of the bidding process, the Approach Paper also provides the indicative schedule of the bidding process, bid criteria, the methodology for fixing floor price, ceiling price and upfront payment and other general terms and conditions of bidding.

Meanwhile, the Ministry of Coal has constituted an Inter-Ministerial Committee to examine the Approach Paper for auctioning of coal mines. The IMC consists of Power Secretary, Economic Affairs Secretary (Ministry of Finance), Expenditure Secretary (Ministry of Finance), Steel Secretary, Industrial Policy and Promotion Secretary (Ministry of Commerce and Industry), Coal Secretary and Legal Affairs Secretary (Ministry of Law and Justice).

The Coal Mines (Special Provisions) Ordinance, 2014, was promulgated following Supreme Court’s cancellation of allocations of 204 coal blocks with the objective of providing for allocation of coal mines and vesting of the right, title and interest in and over the land and mine infrastructure together with mining leases to successful bidders and allottees.

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