Coal blocks are classified into power & non regulated. There will be separate bidding norms for power & non regulated sector.
Clubbing of multiple end use in non regulated sector may increase competition. HNDL can bid for non regulated coal blocks
Reclassification of Mahan, Talabira II, Utkal 1B coal blocks to power is likely a setback for HNDL and JSPL
Draft norms provides better clarity around auction process
Government has released proposed draft norms for auction of coal blocks for public consultation. The final rules would be released after incorporating comments from stake holders. As per the draft rules, there would be separate bidding process for power utilities and non-regulated sector. Clubbing of multiple end use sectors under non-regulated sector may lead to a better reserve allocation in our view. But bidding would also be aggressive in non-regulated sector as result, though this would also depend on the coal block. Aluminum (Al) producers can bid for coal blocks reserved for non-regulated sector. This should be a relief for Al producers like Hindalco, Sesa Sterlite as there was confusion around their classification. However, re classification of end use of key coal blocks earlier allotted to HNDL and JSPL is likely a setback for HNDL and JSPL, in our view, as they would not able to bid for these coal blocks.
Separate bidding norms for utilities and non-regulated sector
Coal blocks would be classified into power utilities and non -regulated sector. Coal blocks for steel, cement and captive power sector end use (including Al) are now clubbed under non-regulated sector. For non-regulated sector, coal block would be allotted to bidder quoting highest bid price per ton of coal produced (above floor price). For power utilities, bidding would be based on reverse auction in order to ensure power tariffs do not increase. As per the proposed norm, bidder quoting lowest coal cost (below a cap price) would be granted the coal block. The power tariffs would be revised lower based on coal cost bid by the bidder.
Coal blocks would be classified into power utilities and non -regulated sector. Coal blocks for steel, cement and captive power sector end use (including Al) are now clubbed under non-regulated sector. For non-regulated sector, coal block would be allotted to bidder quoting highest bid price per ton of coal produced (above floor price). For power utilities, bidding would be based on reverse auction in order to ensure power tariffs do not increase. As per the proposed norm, bidder quoting lowest coal cost (below a cap price) would be granted the coal block. The power tariffs would be revised lower based on coal cost bid by the bidder.
101 coal blocks to be allocated/auctioned initially
Government plans to allocate/auction 101 coal blocks (74 coal blocks earlier). 36 coal blocks would be granted to public sector firms on a discretionary basis. 65 coal blocks would be auctioned. Of this, 28 coal blocks has been earmarked for power utilities, 37 coal blocks for non-regulated sector including 3 coking coal blocks.
Government plans to allocate/auction 101 coal blocks (74 coal blocks earlier). 36 coal blocks would be granted to public sector firms on a discretionary basis. 65 coal blocks would be auctioned. Of this, 28 coal blocks has been earmarked for power utilities, 37 coal blocks for non-regulated sector including 3 coking coal blocks.
Reclassification of coal blocks a setback for HNDL,JSPL
Government has changed end use classification of 10 coal blocks from steel, captive power, commercial to power utilities. Talabira I and Mahan coal block, earlier allotted to Hindalco is now reserved for power sector. Utkal 1B coal block originally allotted to JSPL for its Angul steel plant is now reserved for power sector. Thus, HNDL and JSPL would not likely be able to bid for these coal blocks for supplying coal to their original projects (where they may have a logistical advantage). We note JSPL could still bid for Utkal 1B for supplying coal to its Tamnar power projects.
Government has changed end use classification of 10 coal blocks from steel, captive power, commercial to power utilities. Talabira I and Mahan coal block, earlier allotted to Hindalco is now reserved for power sector. Utkal 1B coal block originally allotted to JSPL for its Angul steel plant is now reserved for power sector. Thus, HNDL and JSPL would not likely be able to bid for these coal blocks for supplying coal to their original projects (where they may have a logistical advantage). We note JSPL could still bid for Utkal 1B for supplying coal to its Tamnar power projects.
Merchant power sales to be capped at 20% of capacity
Government plans to cap merchant power sales to 20% of capacity linked to allotted coal mine, in case of power plants having un contracted capacity. The bidder would also have to pay an additional reserve price (>Rs150/ton) pertaining to coal used for merchant power sale. This could cap potential returns at merchant power plants like JSPL's Tamnar I (1000MW) power project, even if it win a coal block.
Government plans to cap merchant power sales to 20% of capacity linked to allotted coal mine, in case of power plants having un contracted capacity. The bidder would also have to pay an additional reserve price (>Rs150/ton) pertaining to coal used for merchant power sale. This could cap potential returns at merchant power plants like JSPL's Tamnar I (1000MW) power project, even if it win a coal block.
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