KOLKATA (miningweekly.com) – India’s ongoing auction of 27 coal blocks with end-use restrictions has evoked a tepid response from prospective developers with 45 bids received for the assets on offer, prompting the Coal Ministry to further tweak auction rules.

According to information available from government sources, only six of the 27 coal blocks received an “adequate number of bids” with another six blocks evoking interest from state and central government undertakings.

A section within the government maintained that the recent opening up of coal mining to foreign investors, permitting 100% foreign direct investment in commercial coal mining without end-use restrictions, had impacted investment sentiment among domestic investors and their interest in bidding for coal blocks with end-use restrictions.

This was despite such captive mining regulations having been eased, permitting captive miners free sale from the asset of up to 25% of production.

It also seemed that the location of the coal blocks put up for bidding was acting as a deterrent to attracting a sufficient number of bidders as most of the blocks now up for auction were in the western region, mostly in Maharashtra state, whereas most of coal end-use plants were located in eastern states. Investors were apprehensive about the logistics and transportation costs of shipping coal from the mines to plants located at a distance, officials said.

Since the government opened up coal mining for global majors, enabling the latter to undertake coal mining projects through wholly owned subsidiaries, and additional coal blocks were being identified for exclusive auction, including to foreign investors, before the current year-end, comparatively smaller domestic developers had displayed a wariness in making investments in the current round of auction of coal blocks with end-use restrictions. It was felt that smaller domestic developers would not be able to compete in the changed domestic coal market with the advent of overseas resource majors, and more coal being available in the market dampening the viability of captive mining, officials said.

In a bid to get around the bearish response to the auction of coal blocks for captive mining with relaxed end-use restrictions and free sale of up to 25% of production, the Coal Ministry had relaxed rules that would not permit going ahead with the bidding process even if each coal block received less than three bidders.

Officials said that the Coal Ministry had decided to put in play a recommendation made by an expert committee that auction be completed even if each coal block received only two bids.

The expert committee had submitted its recommendation permitting auction even if the number of bids fell short of the minimum number of bids specified in the auction rules. The relaxation of the auction rules was suggested soon after the fourth and fifth rounds of coal block auctions were cancelled in the past two years after the number of bids for each block fell short of the minimum stipulated in the auction rules.