KOLKATA (miningweekly.com) - The Indian government, which approved the country’s maiden auction of coal blocks to private companies on Tuesday, has laid down that the process will involve a combination of upfront payments, production-linked payments and the benchmarking of selling prices.

The government, however, did not announce the exact date of the auction except that the process would start soon.

The rules provided for production-linked payments on a Rupee/t basis plus an upfront payment of 10% of the intrinsic value of the block.

The government failed to disclose the number of coal blocks to be put up for auction, but Coal Ministry officials said that initially six blocks with estimated explored reserves of two-billion tonnes would be put on the block for bids by private-sector industrial users in steel, coal, cement and power.

“The intrinsic value of the block would be calculated on a basis of net present value of the block arrived through discounted cash flow methods, and selling price would be benchmarked to international freight on board price from public indices and will be used by adjusting it by 15% to provide for inland transportation to arrive at pithead price,” a government statement said.

Among the rules approved by the government, were that successful bidders would have to abide by developmental milestones, such as securing mining leases from provincial governments and obtaining environment and forest clearances, while bidders would have to provide performance guarantees.

Moreover, the rules would also permit that blocks be relinquished without penalty if the bidder wanted, after the completion and achievement of minimum milestones under the agreement.

The Forest and Environment Ministry would review each of the coal blocks before they are put up for auction, but final clearances would have to be sought by successful bidders on submission of mining plans.

The Forest and Environment Ministry, however, rejected the Coal Ministry’s plea for an in-principle approval of the coal blocks before the auction on the grounds that such approvals could be offered in absence of mining plans, production parameters, technology and rehabilitation plans for project-affected people.

The Indian government’s approval of coal block allocation through auctions was significant against the backdrop of a national auditors’ report that the country had suffered a revenue loss of about $211-billion from coal blocks allocated between 2004 and 2009 through the “government dispensation” route.

The Central Bureau of Investigation was currently investigating charges of corruption in the allocation process.

In July, the government allocated 14 blocks to government-owned companies, including NTPC, the country’s largest power utility, through the government dispensation route.