Coal auction a Rs 50,000 crore annual bonanza for states

NEW DELHI: The aggressive bidding in the auction of coal blocks has prompted the government to revise its internal projections of revenue to states to Rs 15 lakh crore (50,000 crore annually) from 204 blocks over the next 30 years from around Rs 7 lakh crore estimated a few weeks ago, half of which was to come by way of royalty.

The resources that will flow to the coal producing states such as Jharkhand, Odisha, Chattisgarh, West Bengal, Madhya Pradesh, Maharashtra and Arunachal Pradesh will be more than the Centre's budgeted non-plan expenditure for the current financial year and many times higher than what the states, several of which have large proportion of poor, spend currently.

"It is going to be much higher than what we had anticipated," acknowledged a government official, who did not wish to be identified.

Till Monday evening, the six blocks where auctions have been completed, will help the states mop up over Rs 12,000 crore based on the bid price and the estimated coal reserves. In case of two blocks — Trans Damodar (West Bengal) and Mandla North (MP) - bidding was underway till late in the evening.

For the Centre, the response has come as a major surprise. For instance, on Sunday, Hindalco successfully bid Rs 2,860 a tonne for the Kathautia block in Jharkhand, which is over nine times the price that the Supreme Court had fixed while deciding on cancelling 204 blocks.

The taint-free allocation method of e-auctions that TOI has suggested in the past has addressed the concerns over industry having to pass on the higher cost of natural resources such as spectrum or coal by putting in place a reverse auction mechanism for the power sector. So, unlike a forward auction where the first bid has to be higher than the reserve price under the reverse bidding method a two stage bidding takes place.

In the first stage, power producers have to bid below the ceiling price. If the ceiling price is Rs 500 a tonne and the final bid is Rs 400 a tonne, the Rs 100 gap has to reflect through lower power tariffs — a benefit that goes to the states that consumer power. The bidders then have to start a forward auction, whose proceeds will go to the producing states.