In November 2008, the Madhya Pradesh State Mining Corporation (MPSMC) auctioned six mines. "The minimum bid price was set at 200% of royalty," says a senior official of MPSMC, who did not want to be identified. A coal mine pays the government a fixed royalty for every tonne of coal extracted by it.
This royalty currently ranges from Rs 180 per tonne for 'grade A' coal to about Rs 127 a tonne for 'grade E' coal. This is what the 57 mines, which the Comptroller & Auditor General (CAG) has examined, will pay on their production. Based on certain assumptions and extrapolations from numbers of Coal India, CAG further estimated the per-tonne-profit for these mines to be 295. In the MPSMC auction, however, the winning bids ranged from a royalty of Rs 700-1,200 per tonne.
"The auctions by MPSMC netted 2.3-7.1 times the rates we assumed," says a senior manager in CAG, who was part of the team that prepared this report and spoke on condition of anonymity. "It would be reasonable to assume that private miners, purportedly more efficient than Coal India, should have higher revenues and lower costs, which is exactly what the MPSMC reveals. This is only what the operators have bid, which is likely to be lower than what they would actually gain - they have to make a profit after all."
The MPSMC official adds that all the six mines are underground. "Their extraction cost is greater than when they are from open-cast mines. Also, the quantum of coal that can be extracted will be less," he says. "Despite that, companies bid well above the existing royalty rates." Of the 140 companies that participated, ACC bagged four of the six blocks, and Monnet Ispat and the Jaypee Group one apiece. The winners would have the first right of refusal over the coal extracted. "We expect to earn Rs 900 crore every year (in royalty)," says the MPSMC official quoted earlier. Read the full report here.
Source: M. Rajshekhar, ET Bureau, Economic Times, New Delhi.
