India likely to adopt revenue sharing model for commercial coal mining

According to Mining News Pro - The Ministry is soon expected to announce auction rules incorporating revenue sharing model contracts for successful bidders, with domestic miners and global resource majors expected to participate in the competitive bidding.

The revenue sharing bidding process would replace model contracts offered earlier in the auction of coal blocks for captive mining, which entailed reverse bidding on fixed price of coal with the lowest quote offered winning the bid.

The government has identified 15 coal blocks, with potential to produce four-million tons a year of the dry fuel, that will be put up for bidding before the end of current calendar year.

A government official said that while the government had permitted 100% foreign direct investment in 100% commercial coal mining, any global resource major would need to bid through its subsidiary registered in India.

Though the fine-print of the proposed revenue sharing contract to be offered to successful bidders had not yet been put in the public domain, sources familiar with the details said that the reserve price for each block would be set at 4% of the value of coal expected to be dispatched from the block and a sum equal to 2% of the intrinsic value of the coal from the mine would need to be submitted by a bidder as bank guarantee.

A successful bidder would be chosen based on maximum revenue offered to the government and each competitive bid would need to be in multiples of 0.05% of the revenue share above the reserve price. On successfully bidding for a block, an investor would need to make upfront payment of 2.5% of the intrinsic value of the coal in four equal installments to the government.

Officials said that the Ministry was giving special attention to bringing coal blocks for commercial mining into production within the shortest gestation period and the auction rules were likely to offer fiscal incentives based on timelines to achieve production parameters.

It was likely that the government would lower total revenue to be shared with the government by any miner by 10%, if the latter was able to bring the asset into production one year earlier than the timeline set in the contract with the government.

Similarly, the government would reduce the revenue to be shared with the government by 20% if the miner operationalised the coal block two years ahead of the contracted timeline, the officials said.