Cabinet approves adoption of methodology for auction of coal and lignite mines/blocks for sale of coal / lignite on revenue sharing basis and tenure of coking coal linkage

A paradigm shift in the approach from being oriented to maximum revenue from coal to making maximum coal available in the market at the earliest

A move away from fixed rupees per tonne basis auction methodology to a more market oriented revenue share auction methodology

Methodology enables adequate competition which will allow discovery of market prices for the blocks and faster development of coal blocks

Permitting commercial exploitation of Coal Bed Methane in the mining lease area

Rebates in revenue share payments in the event of early production of coal from the coal mine

Clean coal options - Rebates for consumption or sale of coal for gasification or liquefaction

Higher investment will create direct and indirect employment

Tenure of Coking Coal linkage in the non-regulated sector linkage auction increased upto 30 years

The Cabinet Committee on Economic Affairs, chaired by Prime Minister Shri Narendra Modi, has approved the methodology for auction of coal and lignite mines/blocks for sale of coal / lignite on revenue sharing basis and increasing the tenure of coking coal linkage.

This methodology provides that bid parameter will be revenue share. The bidders would be required to bid for a percentage share of revenue payable to the Government. The floor price shall be 4% of the revenue share. Bids would be accepted in multiples of 0.5% of the revenue share till the percentage (%) of revenue share is up to 10% and thereafter bids would be accepted in multiples of 0.25% of therevenue share. There shall be no restriction on the sale and/or utilization of coal from the coal mine.

The methodology is oriented to make maximum coal available in the market at the earliest and it also enables adequate competition which will allow discovery of market prices for the blocks and faster development of coal blocks. Higher investment will create direct and indirect employment in coal bearing areas especially in mining sector and will have an impact on economic development of these regions.

Successful Bidder shall be required to make monthly payments which shall be determined as product of:

(i) percentage (%) of revenue share (final bid)

(ii) quantity of coal on which the statutory royalty is payable during the month and

(iii) notional price or actualprice whichever is higher.

 The Upfront Amount shall be 0.25% of the value of estimated geological reserves of the coal mine payable in 4 equal instalments. However, the upfront amount payable shall be as per actual calculation as per above method or as per ceiling mentioned here below, whichever is lower:-

Geological Reserves in mine (MT)	Upper ceiling of Upfront Amount (Rs. cr)
Upto 200	100
Above 200	500

It also permits commercial exploitation of the CBM present in the mining lease area.

This methodology provides incentives to the successful bidder by way of offering rebates in revenue share in events of early production of coal from the coal mine and the total quantity of coal consumed or sold or both for gasification or liquefaction on an yearly basis from the coal mine.

As the entire revenue from the auction/allotment of coal mines would accrue to the coal bearing States, this methodology shall incentivise them with increased revenues which can be utilised for the growth and development of backward areas and their inhabitants including tribals. States in Eastern part of the country will be especially benefited.

Tenure of coking coal linkage in the non-regulated sector linkage auction has been increased upto 30 years.

Revenue share auction for coal replaces fixed bids, sets payment formula and incentives, and extends coking coal linkage tenure. Approval establishes a revenue-share auction for coal and lignite where bids are percentages of revenue payable to the government with a floor and defined increments; sale and utilization of coal are unrestricted. Monthly payments equal the bid percentage times the quantity of royalty-bearing coal times the higher of notional or actual price. An upfront amount based on estimated geological reserves is payable in instalments subject to upper ceilings. Commercial exploitation of Coal Bed Methane is permitted and revenue-share rebates are available for early production and for coal used in gasification or liquefaction. Tenure for coking coal linkage in the non-regulated sector is increased up to thirty years.