NEW DELHI: India will not auction new coal mining blocks to the power sector and will instead allocate them to companies that offer to sell electricity cheapest, a government source said on Monday.
The country is introducing a new system that will put an end to allocation of captive blocks to power plants at the government’s discretion, as done in most cases in the past, and will help bring transparency at a time when the government is being buffeted by corruption scandals.
Power companies will be vying for about 16 of 54 coal blocks that the government has earmarked for allocation through bidding
expected to take place by the year-end. “Auctioning of blocks will happen for cement and steel companies. But for power it will be through competitive tariff-based bidding,” a senior coal ministry source said on condition of anonymity as the matter is still under discussion.
By using a method linked to tariffs, the government hopes to keep electricity costs low. Power tariffs are a highly political issue in a country where in some states millions of farmers are offered free electricity as a vote-winner.
The call for auctioning of coal blocks has grown following a leaked report by the federal auditor that accused Prime Minister Manmohan Singh’s government of giving up $211 billion in potential revenues by giving away coal assets too cheaply.
No coal block has been awarded since 2009. In the past, a few captive mines had been allocated to power producers offering the cheapest electricity rates but discretionary allocations have been more prevalent.
The coal ministry is appointing a consulting firm, probably within a month, to help with the auctioning and expects to finalise reserve prices for the blocks in the next four months, the source said.
Power companies are likely to be attracted to the bidding as blocks will provide them with an assured supply of a fuel shotages of which have crippled expansion in the sector and forced many power plants to run below capacity.
In some cases, power companies with captive coal blocks are also allowed to sell a small portion of electricity in the open market where they can get higher tariffs.
Coal accounts for more than half of India’s power generation and will be required for 85 percent of the 76,000 megawatts additional capacity targeted in the next five years.