Indian metal and cement companies have bid aggressively for coal blocks in the country’s first auctions to sell mines – of the 19 blocks currently on offer, 14 have already sold for over 60,000 crores.
The auction comes after the Supreme Court last year ordered the cancellation of nearly 200 mining licenses issued by successive governments since 1993. The government had said it expects to raise Rs 15 lakh crore from the new bidding process.
The aggressive bidding seen in the ongoing auctions has led analysts to speculate that that the government may end up with more revenue that earlier estimated from the sale of coal blocks. The second round of auctions will include 43 blocks from February 25 to March 5.
In 2012, the national auditor said that the lack of a transparent bidding process in mining rights had cost the country 1.86 lakh crores. The bids so far suggest the sales proceeds will zip well past that estimate.
Companies who are bidding for the licenses want to cut imports and slash their dependence on inefficient government monopoly Coal India Ltd. The companies are allowed to bid for enough coal to fuel a 50 per cent expansion of their current metal or cement capacity.
Most of the winning bids so far have been higher than analysts’ expectations based on the benchmark price of state-run Coal India.
The companies have declined to comment on the auctions until the whole process is complete.
Coal India’s prices are set according to cost rather than based on supply and demand in the market and its costs are high at 1,118 rupees per tonne, more than half of which comes from employee and social costs.
For the private companies, mining costs are likely to be between 400 and 600 rupees per tonne, according to Pinakin Parekh, an analyst with J.P. Morgan.