Reallocation of Captive Coal Blocks in India , 2015

Reallocation of Captive Coal Blocks in India 2015 : Understanding the Strategies & Cost Mechanics Behind Succesful Bidding

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In what could be termed as a landmark judgment the Honorable Supreme Court of India, on September 24, 2014 cancelled the allocation of 204 coal blocks amidst all the hullabaloo of possible negative repercussions of same. The term referred by the court was no less than a sharp reaction on to the process followed in the earlier allocations way back in 1993; terming it “illegal”.  The rationales behind the allocation of the blocks were somewhere diluted and were perhaps not in line with the Coal Mines (Nationalization) Act 1973. This is clearly reflected in the observations of the court that as per provisions of the Coal Mines (Nationalization) Act 1973, coal mining is allowed only by a Central Government company, or a Government/private company having the specified end-use of iron & steel, power, cement, washing of coal, and syn-gas (coal to liquid).

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DOP: February, 2015 Sector: Geography:

In what could be termed as a landmark judgment the Honorable Supreme Court of India, on September 24, 2014 cancelled the allocation of 204 coal blocks amidst all the hullabaloo of possible negative repercussions of same. The term referred by the court was no less than a sharp reaction on to the process followed in the earlier allocations way back in 1993; terming it “illegal”.  The rationales behind the allocation of the blocks were somewhere diluted and were perhaps not in line with the Coal Mines (Nationalization) Act 1973. This is clearly reflected in the observations of the court that as per provisions of the Coal Mines (Nationalization) Act 1973, coal mining is allowed only by a Central Government company, or a Government/private company having the specified end-use of iron & steel, power, cement, washing of coal, and syn-gas (coal to liquid).

Following a strict stand and with likely prohibition to any further such arguably scandalized allotments the SC cancelled all coal blocks allotted since 1993 (except a block each allotted to NTPC and SAIL and two blocks of Sasan UMPP-won by Reliance Power) and imposed a heavy retrospective INR.295/tonne penalty on coal mined so far. The SC however was considerate of the operational level challenges and thus has offered a leeway to current operators till March 2015, post which CIL will take over these mines till they are auctioned. The order will certainly have impacts on the power and iron & steel sector of India at large.

It is estimated that impacted power generation capacity, after SC judgment on coal de-allocation, stands out at a whopping at 45.4GW, of which only 19.2GW is operational currently. Also it is pertinent to note that only 23.8GW has fuel pass-through arrangements and 6.7GW is competitively bid. The clear impact thus consequently, would impact the cost competiveness of power generation utilities in case for competitively bid projects. Moreover, the impact would not unidirectional only on generation companies but also onto the state DISCOMs and consumers who are also likely to hit, where project PPAs allow full fuel pass-through.

Remarkably power sector is not the only sector getting impacted by the verdict but also iron & steel sector. The SC judgment has directly affected 12MTPA of iron and steel manufacturing capacity, which may render them uncompetitive.  Also, owing to the slow rate of coal production by CIL coupled with this fresh de-allocation the tune of increased coal imports would be a certainty amidst re-allocation

By meticulously examining the current dynamics involved in the coal block de-allocation and then the much hyped re-allocation process, ENINCON through this report attempts to evolve with strategies which would be ideal and would pose to be a path finding guiding light in terms of contriving a winning bid for coal blocks and takes pride in attempting to conduct the valuation exercise of possibly all major coal blocks to primary consuming sectors like power, iron & steel and commercial.

 

Key Queries Resolved

  • Which player is suited to develop a block as per the end consuming industry?
  • Which could be the ideal regions for the players to bid for?
  • What would be the possible impacts on the stake holders of the decision of Supreme Court of India?
  • What would be possible impacts of reallocation on power sector?
  • What would be the possible impacts of reallocation on iron and steel sector?
  • What would be the cost of consuming coal for both the sector mentioned above?
  • What should be the ideal bid scenario for a coal block as the per the location of end use plant?
  • What would be the ideal bid price quotations ?
  • What would be the other ideal parameters for making the bid successful?

USPs associated with the report are as follows:

  • First hand sector knowledge and inputs
  • Primary research inputs from F2F interviews with domain experts
  • Experts insights and market reviews taken into consideration
  • Validated data and analysis
  • Opportunity mapping and market sizing
  • Germinates from minds that think fresh to evolve path finding guide for all stake holders through quality information and analysis

Key Highlights:

  • Cost analysis of coal for end consumers post de-allocation
  • Impact analysis of deallocation on iron and steel industry of India
  • Impact analysis of deallocation on power industry in India
  • Valuation of coal blocks to be reallocated for end consumers
  • Financial model for lifetime of to be allocated blocks
  • Risk analysis for to be allocated blocks
  • Mapping most suited likely bidders for blocks to be reallocated
  • Key winning strategies to bid for reallocation of coal blocks