The floor price of each coal block, which is going to auction in coming months, will decide the quality of coal.
Post declaration of cancelled coal blocks auction, the government had considered the current domestic coal pricing (CIL’s price) model as a benchmark to calculate NPV of blocks. As floor price is based on NPV, it is a vital factor that describes the quality of coal extracted from a particular mine.
If Coal India will increase its prices during the auction process, floor price will also get increased for the blocks, whose bids have not been invited yet. Meanwhile, the ministry will not make any changes on block, whose bids are invited.
Government has range-bound the floor price from minimum INR 150/MT to maximum INR 600/MT (expected) for different coal blocks, which are to be auctioned to Steel, Sponge iron, cement and captive power companies. The floor price will differ on the basis of coal quality extracted from mines.
“Auction methodology only mentions that the floor price will not be less than INR 150 /MT, while, not received any confirmation on the upper limit”, said by an official.
Blocks’ NPV is calculated from the total revenue, which will be earn from life of mine with reduction of expenses including infrastructure cost and costs involved in lifting of coal. The received value is discounted with estimated inflation rate. Meanwhile, 90% of received value is divided by the extractable quantity allowed from each block, which will be the floor price of the block.
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