KOLKATA (miningweekly.com) – Portents of a winners’ curse are surfacing for the successful bidders for coal blocks in India’s maiden auction of resources.

Faced with delays in mandatory paperwork at the federal and local levels and a reluctance by banks to provide debt financing, most investors, particularly the private thermal power project developers, were in no rush to operationalise the coal blocks.

Six months after the completion of the first auction round, winning bidders were yet to mine even a single tonne of coal.

As a result, the new coal block owners were seeking government assistance in the form of relaxations in the terms and conditions of lease agreements for the resources allocated to them.

Industry body Associated Chamber of Commerce (Assocham) in a communication to the Power Ministry on Wednesday said “there is a tight liquidity crunch with nonperforming asset-wary banks reluctant to fund mine development”, and suggested that the Ministry put the second and third instalment of upfront payments by bidders on hold until mining leases were signed.

“Even after six months of coal block auctions, output from the mines has not started as clearances have not been accorded by central and state governments, thereby hampering cash flows in the sector,” Assocham said in a statement.

The Indian government in its maiden auction of resource blocks early this year had allocated 29 coal blocks through competitive bidding.

However, a few of these blocks already in production or close to it, had been taken back from erstwhile owners under Supreme Court order and put up for fresh bidding. But the new successful bidders of these blocks have yet to start production from these mines as the issue of compensation to previous owners for investments made by them, was yet to be resolved.

According to a section of government officials, private independent power producers were not keen to start production from mines secured at the auction for captive mining owing to the government’s post-auction regulations on costs.

The government had set a cap on fixed costs for plant and equipment and, with thermal power investors not permitted to pass on the rising cost of fuel to consumers, project developers were not permitted to recover the rising cost of coal by increasing the fixed cost component of the project.

As a result, there was little incentive for power project developers to start coal mining, government officials added.

In fact, one of the successful bidders at the auction has decided to return the coal block secured following the government’s decision to set a cap on fixed costs, which the company argued would prevent it from recovering the cost of coal produced.