India: Auction Of Coal Mines: The Government Rushes To Meet The Deadliness

Last Updated: 30 September 2015
Article by Ajay Shaw and Ashish Pahariya

In a view to send across a message of positivity as regards the functioning of the Central Government and its commitment to usher in economic growth, the process of auctioning and reallocation of the coal blocks has been put on fast-track. In the preceding months, the Central Government has taken various actions in this regard. Firstly, the Coal Mines Special Provisions Ordinance was issued in October, 2014 (Coal Ordinance) after which an amendment bill in line with the Coal Ordinance was introduced in Parliament

and was passed by Lok-Sabha. The amendment bill as approved by the Lok Sabha is yet to be cleared by Rajya Sabha. Despite this the Central Government in order to keep the momentum of ushering in economic reforms and meeting the deadlines set by the Hon'ble Supreme Court re-promulgated the Coal Ordinance in December, 2014.

Pursuant to the Coal Ordinance, the Central Government has appointed a nominated authority which will carry out the entire process of auction and reallocation of the coal blocks. The process of auction has commenced with a tender notice being issued on December 25, 2014. The Government is optimistic of completing the auction before the deadline set by the Hon'ble Supreme Court i.e. March 31, 2015. In this article we have highlighted the key aspects of the auction process as introduced by the Coal Ordinance.


The amendments introduced by the Coal Ordinance permits auction and allocation of coal mines without any restriction on end use. However, in the on-going auction of coal mines the Central Government has been earmarked the allocation of coal mines for 2 specific end uses, firstly for the power sector and secondly for non-regulated sector (iron and steel, cement and captive power plants). A bidder in his bid for a coal mine has to specify the end-use plant for which it is bidding.

However, upon a coal mine being allocated to a successful bidder, the coal mine can be used for other common end-use plant by the said bidder. The Central Government may also permit special arrangements between the successful bidders for optimum utilisation and cost efficiencies of coal mine. Arrangement can also be entered into with coal linkage holder. Such arrangements will be permitted only for the same end uses.

Though there is no clarity on kinds of arrangement permitted under that, but coal swap arrangements to save transportation cost in our view would be one such permissible arrangement.


The auction of mines is being implemented through two bidding methods i.e. forward bidding and reverse bidding.

Forward Bidding

The mines meant for iron & steel, cement and captive power plants are being auctioned through forward bidding. The forward bidding involves fixation of a floor price for each mine based on net present value (NPV) of the coal mine. The NPV will be calculated by the discounted cash flow method based on the prices of coal notified by Coal India Limited. 10% of such NPV will be payable upfront and the balance NPV will be annuitized to become equal to a unit ratio in terms of Rs/tonne which shall be considered the floor price for bidding. Presently Rs. 150/tonne has been set as minimum floor price. The bidder who quotes the highest price above the floor price will get the coal block.

Reverse Bidding

The reverse bidding is being used for mines earmarked for power sector (other than the captive power plants). The Government will fix a ceiling price and the bidders will be required to quote below such ceiling price. The bidder who quotes the lowest price will be allocated the coal block. The idea is to grant the maximum benefit of coal mine to the consumers of power as the cost of coal is ultimately passed on to the consumers. The successful bidder will have to pay a fixed reserve price of Rs. 100/tonne. If the successful bidder is undertaking sale of power on merchant basis, it will have to pay additional reserve price (which will be calculated on net present value basis) for the quantum of coal utilised for generation of such power sold on merchant basis. The successful bidder has to cap its merchant capacity at 15% of the installed power capacity. While, the reserve price will be payable to the Government, the aggregate of the bid price and the reserve price will be used for computation of energy charge for determination of tariff under the power purchase agreement entered into with distribution utilities.

Each quoted price will be subject to escalation as per the prevalent Wholesale Price Index. It is to be noted that the royalty will be payable additionally as per Second Schedule of the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act). The bidders will also have to factor in the amounts payable to the District Mineral Foundation and National Mineral Exploration Trust as stipulated in the Coal Ordinance.


The Ministry of Coal has contemplated revision of energy charge' under the existing power purchase agreements (PPAs) for the successful bidders. The aggregate of the bid price and the reserve price together with allowable expenses and levies will be considered Run of Mine' cost of coal. The bid price will be subject to escalation in accordance with the formula prescribed in the existing PPAs. Since, the reverse methodology is being used for determination of bid price, it is expected that the auction will not increase the electricity tariffs. The revision of energy charge will be done under change in law'. However, the Ministry of Power is yet to notify detailed guidelines in this regard.


For eligibility purposes the mines have been divided in two categories i.e. Schedule II mines and Schedule III mines. Schedule II mines are those 42 mines which are already operational or ready for operation as per the Supreme Court judgment. A person who has incurred at least eighty per cent of total project cost of end use plant can bid for Schedule II mines. Schedule III mines are all other mines which are yet not ready for operation and still require further development. For these mines, a person who has incurred at least sixty per cent of total project cost of end use plant can bid. The capacity of the end-use plant should be proportionate to the capacity of the coal mines.


The successful bidder is mandatorily required to takeover land and mine infrastructure for a notified fixed price. The value of land is determined based on value shown in the registered sale deeds with twelve per cent interest. The written down value in the balance sheet will be used for determining the value of the mine infrastructure. The mine infrastructure would include all fixed installations and structures, land demarcated for afforestation and R&R purposes and would exclude all movables which can be separately bought by the successful bidder from the prior allottees.


As the allocation of the coal blocks have been cancelled by the Supreme Court, the security interest of the existing secured creditors has consequentially fallen away. However, the Coal Ordinance grants first right to the secured creditors of the prior allottees over the compensation which will be received by the prior allottees form the successful bidder for land and mine infrastructure. The secured creditors will thus have no right in the land and mine infrastructure of the coal mine and their only recourse will be against the prior allottees including the secured lenders' first right on the cash flow that may be received by the prior allotee from the successful bidder.. If the prior allottees become the successful bidder, then the secured creditors will continue to enjoy the security interest on coal mines.

The Coal Ordinance and the rules framed thereunder cover most of the aspects on the way to deal with the de-allocated coal blocks. However, there are a few issues the Coal Ordinance does not provide any clarity on. The Coal Ordinance does not make any provision for smooth transfer of the existing approvals/ permits of the coal mines to the successful bidder. Such transfer will have to be dealt in accordance with applicable laws of such approval/permits, which may be time-consuming exercise and thus, delay the entire coal mining activity. Further, the successful bidder will have to assume the risks involved in the existing land acquisition proceedings. While, the Coal Ordinance promises lifeline to the projects stuck due to cancellation of allocation, however, it is to be noted that not all coal mines whose allocations were cancelled are being auctioned. Remaining mines may be allotted under tariff based competitive bidding for power projects based on the recommendation of the ministry of power. Further, the future of the Coal Ordinance will most importantly hinge on the Government's ability to ensure that the bill is approved by the Parliament.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.