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Cancelled mines to be handed over via auction before Mar 31

The government’s plan to undertake an e-auction for coal blocks whose allocation was cancelled by the Supreme Court in August is on track and the mines will be handed over to new miners well before March 31, 2015, the day when the existing operators will have to relinquish control, Coal Secretary Anil Swarup told CNBC-TV18’s Latha Venkatesh in an exclusive interview.

In this round of auctions, 42 mines that are already operational and 32 mines that are ready to become operational will be put up on the block, he said. While state-run companies will be directly allotted blocks, private companies will have to bid for mines, the secretary added.

He also maintained that private-sector power companies — by virtue of being regulated — may get a differential rate while non-power consumers of coal such as in the cement and steel sectors may be asked to bid at a different price.

Swarup also remained non-committal on the issue of coal denationalization: he made it clear that while winners in this particular auction will only have to use coal for their end purposes, the government had yet not put thought into allowing commercial mining of coal in future, he said.

Below is the transcript of Anil Swarup’s interview with CNBC-TV18\’s Latha Venkatesh.

Q: What investors really want to know is what is the auction plan? You have a time limit set by the court, so what comes first – the coal mines that you are going to allocate to PSUs then to the power companies, the cement companies, just lay out what you have in terms of a timeline and process?

A: We have worked out a detail timeline of variety of activities that will ultimately lead to the handing over of coal mines to the new allottees and this has to be done before March 31. We appear to be on track and we should be able to do that well before March 31. In the first go we are looking at 42 such coal mines where Supreme Court has allowed mining till March 31. So, this has to happen before March 31.

We have added another 32 set of mines to it which are almost ready for mining. So, in all we have 74 mines. We are looking at some more mines so as to ensure that sufficient coal supply becomes available to the power sector.

Q: How will the process be? The PSUs don’t have to bid they get the coal mines, right? They get allotted, they don’t have to bid in the auctions?

A: There are two sets of activities, one would relate to allocation where we will allot it to either government entities or PSUs – that is allotment and the other set would be for auction, this will be for all private sector entities and even the government entities can also bid in that auction.

Q: What is the price at which the PSUs or the government departments get it, is it free or will it be at the same price as they are auctioned?

A: That is being determined. The floor price and the other price is being determined and the allocation price will be determined and they will have to pay that price. This is being determined by the government.

Q: It is not going free to the state government departments?

A: No it is not going free because there could be a situation where a mine gets allocated to another state from a state so that state where the mine exists would be given a certain amount. That is where the reserve price will come into play.

Q: By when will we know the reserve price for the various categories and I assume the reserve price is different for power, cement and steel?

A: Power is a regulated sector so obviously the situation and determination of price would be different as compared to the cement and steel which is not a regulated sector.

The primary objective in the power sector is to ensure that the tariffs remain limited to the ones that we have right now, tariff should not be increased that is the primary objective. So, there the pricing would be different as compared to steel and aluminium.

Q: So there will be basically two sets of auctions, one for power and one for non-power?

A: Yes we will earmark the mines for specific category and that is how it will be auctioned.

Q: And by when will we know the reserve price?

A: We are working on it, we have a timeframe for each set of activity including the reserve price and well before we issue the tender the price would be known.

Q: The current allotees of coal mines and from whom the mines have been taken away or deallocated they are to get compensated in some fashion for the investments made?

A: Yes. There is a valuation committee headed by the ex-CVC and that committee is working on the valuation of those mines and the amount that they determine will have to be paid by the next allotees.

Q: One of the big worries for those who already have the mines and are working them is that they may end up winning somebody else’s coal mine and their own coal mines in which they have worked could be won by somebody else who is desperate for in house coal. Can there be any swapping done thereafter; something in the ordinance gave the impression that some kind of swapping is possible?

A: Yes, it is.

Q: Can you elaborate?

A: Swapping will be possible – suppose a particular person who gets a mine, has allotment elsewhere, so he can swap that allotment with this allotment, but he can’t swap it with others.

Q: So, he can only swap it with someone who had that mine before?

A: Yes.

Q: You are not envisaging any situation where, say a cement company which has got a coal mine in house or a steel company has more coal than it needs, it can’t sell it to either a power company or to  Coal India itself that is not envisaged?

A: No, they can’t. End user is sacrosanct.

Q: Somewhere in the ordinance you also gave the impression that at some point commercial sale will be allowed in the ordinance itself without any changes in the law. Are you therefore visualising some kind of commercial sale or commercial mining of coal at all?

A: At this point in time for the 74 blocks that are going to be put on auction there is no commercial sale allowed. End use is predefined and they will be used for the purpose for which the mine is actually given. Subsequently, after we are through with all this there is a provision in the law now that the government if so desires can consider exploitation of a mine on commercial basis by private sector but that thought process will start once we are through with these 74 mines.

Q: That can be done under the authority given to the government by the ordinance itself or will that lead its way?

A: Yes.

Q: Is there any thinking at all to scrap the Coal Nationalisation Act and rethink it from ground zero?

A: No, these are two different concepts altogether.

Q: Yes, I agree with you.

A: They are absolutely different, because denationalisation would mean that we are trying to denationalise Coal India where there is no such move. Coal India remains where it is, even when the sector gets opened like it happened in the banking sector – State Bank of India was not denationalised. The nationalised banks were where they were. The sector was opened for other private sector banks to come in and start operations.

A similar sort of thing can happen here but government has still not given it a thought in that sense. An enabling clause has been included in the legislation so that in case it is though then you don’t have to go ahead and amend the act all over again.

Q: Therefore should I understand that like in the banking sector we are going to see a large part done by Coal India but several commercial entities coming up for coal mining sometime soon, should we expect that in a year or less?

A: No, I cannot define a timeline for it because it is basically an enabler. Now the government will have to sit and see how and when, if and when that needs to be done. But without this amendment the thought process would not also have started. So, you enable that and then see what are the consequences, how it has to be done. So this will be discussed and a view will be taken on that.

Q: But have you all discussed that with the law ministry or there are enough legal entities?

A: We are too preoccupied with the 74 mines.

Q: I agree with you but that was that small oblique commercial sale was the small window which gave the impression that there can be path breaking changes in the sector?

A: You should try and understand that in legislation you can’t give a spade to somebody to start digging the mine; you enable it in the legislation that is what has been done.

Now the next step would be how to go about doing it. But right now since we are really pre occupied with the 74 mines and implementation of Supreme Court order we haven’t been able to give it a thought any further, but certainly when we are through with it we will start giving it a thought.

Q: That is the thinking that after March 31 by when your auction process would be over and done with we could expect some serious amendments to the Coal Nationalisation Act or some other legal changes; I am asking you whether a legal framework will be put in for commercial mining after your auctioning is over?

A: Legal framework is already there, no further legal framework is required. Ordinance is good enough because they have also amended the MMDR Act. So, all legal provisions are there. If and when it is decided that this has to be done it can be done.

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