Mumbai | March 02, 2015: Power, metal and cement companies will bid for 19 schedule III mines in the second round of coal auctions starting this week.
Analysts and industry experts, however, do not expect aggressive bidding for these mines as they are under-developed and require land acquisition to be completed.
“Bidding in this round may not be as aggressive as in the first round. These are mines that are at least six to 24 months away from production. These mines also involve significant land acquisition, with an expected quantum jump in the cost of land acquisition it’s likely to further impact the price bids put in,” said Debasish Mishra, senior director of energy practice at Deloitte Touche Tohmatsu India Pvt. Ltd, a consultancy firm.
In the ongoing coal auction process, coal mines up for auction have been divided into three categories—schedule I, schedule II and schedule III mines. In February, 18 coal blocks from the schedule II mines category were auctioned, all of which are operational. Price bidding for 19 schedule III mines is likely to start this week, for which technical bids have already been placed. These mines are at different stages of development.
Of the 19 schedule III mines, six have been reserved for the regulated power sector and the remaining would be available for non-regulated sectors such as metals and cement.
“Land acquisition will be a key concern for winning bidders, especially in the non-regulated sector,” Ankur Kulshrestha and Abhinav Sharma wrote in an HDFC Securities note to clients.
Out of the 19 coal mines on offer, only three have 100% of the required land, while 10 have less than 70% of the land needed, according to the 26 February HDFC Securities note.
The cost involved in land acquisition could be offset with the lower upfront payment that bidders would need to bring in for existing infrastructure at these underdeveloped mines, said Kameswara Rao, executive director and leader of energy, utility and mining practice at consulting firm PricewaterhouseCoopers Pvt. Ltd.
According to the bidding guidelines, the successful bidder needs to pay the prior allottee of the mine for the infrastructure set-up at the mine. “I do not see land as an issue. Schedule III mines will have lesser (compared with schedule II) upfront payment for existing infrastructure. On balance, the capital spends may even out,” he said.
The sheer size of these 19 schedule III mines and the deep pockets required to conduct mining operations could also play spoilsport in the bidding process.
“From what we saw in the first round, bids for larger mines did not see a very high price quoted. In the schedule III mines, there are a good number of large mines and I expect bidders will not want to quote very high prices for these,” said Rahul Modi, an analyst at Antique Stock Broking Ltd.
Among the 19, Mandakini and Utkal coal blocks in Odisha are some of the larger mines on offer. Mandakini has extractable reserves of about 322.8 million tonnes (mt) and Utkal-C has 123.9 mt of extractable reserves. Durgapur II in Chhattisgarh offers 137.1 mt and Rohne coal blocks in Jharkhand has 191.5 mt of extractable reserves.
Rao expects the bidding intensity to mellow down for other reasons.
“The successful winners from the last auction will have met their most critical needs and, in fact, some would no longer have unmet end-use capacity. Further, schedule III participants include those with at least 60% completion (of the end-use project) who can wait and not go all out during the e-auction,” Rao added.
The first round saw Hindalco Industries Ltd, Bharat Aluminium Co. Ltd and UltraTech Cement Ltd winning certain mines at bids higher than Rs.3,000 per tonne.
(Source: http://www.livemint.com/)