NEW DELHI: The government is contemplating asking a price for coal blocks to be awarded for Indias first coal-to-liquid project to get returns for allowing captive mining to convert the fossil into liquid fuels such as petrol, diesel, naphtha, jet fuel, LPG and others.

At present, the government doesnt ask for a price for coal blocks awarded to corporations for captive mining for various listed end uses, in accordance with the Mines and Minerals (Regulation and Development) Act, 1957,apart from a nominal royalty for the quantity of coal dug up.

"The amendment to the Act has already been cleared by the (Union) Cabinet, and the Bill is already with Parliament for its approval," a government official told DNA Money requesting anonymity, adding that all coal blocks will be awarded on basis of competitive bidding after Parliamentary approval to the amendment.

Considering, however, that a Parliamentary approval to the amendment is unlikely anytime soon, the Inter-Ministerial Group constituted to take a decision on awarding the coal block for CTL project is trying to find out ways to get its returns.

"We do not know how to price it. We are trying to find out ways but are totally blank as of now," said the official.

The need for pricing the blocks here is more as the government so far has no control on the final product extracted out of the process, i.e., the liquid fuels.

"So far there is no clause that the oil produced from this project will be used in India only," the official said, adding that many of the companies that have applied for the project to be awarded to them are building their refineries and processing units near ports, indicating that they intend to export the final product.

"If that model is applied where the coal blocks are awarded for free and the companies are also allowed to

sell the product wherever they want, the government will get nothing," he said.
While presenting their business cases before the Inter-Ministerial Group earlier this week, all the companies had agreed to share profits with the government after recovering their costs.

"The consortium Vista Natural Resources Pvt Ltd, led by Videocon Industries, even worked out and gave modalities of likely profit sharing with the government," the official said.

Expert view says that government will benefit if there is a competitive bidding for awarding the captive coal block.

"The best option for the government in this case would be to go the way of New Exploration Licensing Policy (formulated for oil and gas exploration), where the companies are given blocks on competitive bidding and are allowed to take risk and get returns," Standard amp; Poors Indian unit Crisils head of research Nagarajan Narasimhan told DNA Money.

The government, in turn, gets revenue by sharing profits, if any," he added.
Coal India Ltd, the state-run miner with virtual monopoly in India, sells the fossil for 35%-40% below the international prices, which are at about $50 per tonne. Whereas, the cost of mining coal from the captive blocks is at about $10-15 per tonne.

If the government were to ask for price of coal at international parity, the project would become unviable as the South Africas Sasol Ltd, worlds largest producer of liquid fuels from coal, achieved beak-even at $40 when the coal is priced at $10 per tonne, the official said.

"Viability of coal-to-liquid project also depends upon the price of international crude oil in the long term," Narasimhan said, adding, "If the price of crude falls to below $40 per barrel, the whole process will become unviable."
Source : DNA