commercial coal mining auction process

COMMERCIAL COAL

MINING

AUCTION PROCESS

SBI Capital Markets Ltd.

June 2020

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AGENDA

OVERVIEW • Policy Initiatives • Key Features

PRE-E-AUCTION ACTIVITIES • Registration, • Pre-bid, site visits etc.

AUCTION PROCESS • Bid Parameters • E-auction process

OTHER KEY TERMS • Flexibility in Coal Production • Incentives, Miscellaneous

POST-AUCTION ACTIVITIES • Payment & Guarantees • Execution of CMDPA & issuance

of Vesting Order

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OVERVIEW-POLICY INITIATIVES

Auction of Coal Mines for sale of coal under CM(SP) Act, 2015 and MMDR Act, 1957 approved by Cabinet

CM(SP) Act, 2015 and MMDR Act, 1957 amended through Mineral Laws (Amendment) Act, 2020 for – Auction of unexplored and partially explored coal blocks for

prospecting license-cum-mining lease.

– All auctions of coal mines will be for sale of coal only

– No restriction on utilisation of coal

Mineral Concession (Amendment) Rules, 2020, CM(SP) Amendment Rules, 2020 and Coal Block Allocation (Amendment) Rules, 2020 have been notified.

National Coal Index implemented to create a transparent market based pricing mechanism.

Amendment in FDI policy to allow 100% FDI under automatic route for coal mining activities, for sale of coal

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OVERVIEW-KEY FEATURES

01 NO RESTRICTION ON SALE/ UTILIZATION OF COAL

02 MIGRATION TO PERCENTAGE REVENUE SHARE FROM RS./TONNE

03 NO TECHNICAL AND FINANCIAL ELIGIBILITY CRITERIA

04 IMPLEMENTATION OF NATIONAL COAL INDEX

05 MINIMUM NUMBER OF BIDDERS REQUIRED IN THE 1ST ATTEMPT IS REDUCED TO 2 INSTEAD OF 3

.

06 GREATER FLEXIBILITY IN COAL PRODUCTION SCHEDULE

07 INCENTIVE FOR EARLY COAL PRODUCTION AND UTILIZATION OF COAL IN COAL GASIFICATION AND COAL LIQUEFACTION

08 RELAXED PAYMENT STRUCTURE

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PRE-E-AUCTION ACTIVITIES

REGISTRATION DOWNLOADING INFORMATION

SITE VISITS PRE-BID

• Registration at MSTC portal.

• Documents required:

1. Self attested Income Tax PAN Card.

2. Two passport size photographs of the Authorized Signatory.

3. Letter of Authorization

4. Proof of Identity of the Authorized Signatory

5. Copy of the confirmation email.

Two sets of documents available: SET 1 (a)Standard Tender Document; (b)Mine summaries

free of cost download

SET 2 Mine Specific documents.

downloaded post payment of a fee of Rs 5,00,000/- per coal mine

Bidders downloading mine specific information may conduct site visits prior to bid due date. Site visits to be co-ordinated by NA through following mail id [email protected] The site visit to be at the cost and risk of the Bidders

Bidders purchasing tender documents can participate in pre-bid conference maximum of 3 (three) representatives of each Bidder shall be allowed

mailto:[email protected]





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AUCTION PROCESS

2-Stage Online Electronic Auction

Tender Document to be purchased upon payment of fee

Technical Bid

Compliance with Eligibility Conditions

Financial Bid

Comprises of 2 rounds

Initial Offer

To be submitted along with Technical Bid

Final Offer

To be submitted against Qualified Bids

Method of Bidding – Ascending Forward Auction

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AUCTION PROCESS-BID PARAMETERS

. Bid Parameter shall be the percentage (%) share of revenue

Floor price shall be 4% of the revenue share

Bids in multiple of 0.5% of revenue share till it reaches 10% and thereafter in multiples of 0.25% of revenue share

A Bidder shall submit only 1 (one) bid for a particular coal mine

No Affiliate of such Bidder shall submit bid for the said coal mine otherwise bids submitted by the Bidder and its Affiliate(s) will be rejected

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AUCTION PROCESS-TECHNICAL BID

BID SECURITY

ELIGIBILITY CRITERIA

ADDITIONAL CONDITIONS

Bid Security in form of an unconditional & irrevocable bank guarantee

For Fully Explored Mines – equal to 20% of the

Upfront Amount

For Partially Explored Mines – Equal to 25% of the

estimated exploration expenses based on MWP

Validity – not less than 270 days

from the Bid Due Date

In case bidder is a Prior Allottee

– must have paid the additional levy within the time period

– Should not be convicted of an offence relating to coal block allocation and not sentenced with imprisonment for more than 3 (three) years

– a Government company or corporation or a joint venture company formed by such company or corporation or between the Central Government or the State Government, as the case may be, or any other company incorporated in India; or

– a company or a joint venture company formed by two or more companies.

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IPO OPENING

AUCTION PROCESS

Technical Bid is opened and bidders meeting all eligibility conditions are declared as “Technically Qualified Bidders”.

Initial Offer of all the Technically Qualified Bidders are opened.

Ranking and elimination based on the Initial Offers to determine the “Qualified Bidders”.

TECHNICAL BID OPENING

DETERMINATION OF QUALIFIED

BIDDERS

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AUCTION PROCESS-RANKING & ELIMINATION

Technically Qualified Bidders shall be ranked in a descending order on the basis of the respective Initial Offer.

The Technically Qualified Bidders who have submitted the same Initial Offer, shall be assigned the same rank.

Determination of Qualified Bidders

– If 2 to 3 TQBs, all shall be considered as Qualified Bidders;

– If 4 to 6 TQBs, lowest ranked TQB shall be eliminated and remaining are considered as Qualified Bidders;

– If there are 7 or more TQBs, 1/3rd of TQBs subject to maximum of 3 shall be eliminated. If there are more than 3 TQBs at lowest rank, all such TQBs shall be eliminated and remaining are considered as Qualified Bidders.

No TQBs shall be eliminated, if number of Qualified Bidders after elimination is less than 3.

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DETERMINATION OF SUCCESSFUL BIDDER

1 2

5 6

3 4

Upon the execution of the Vesting Order, the Successful Bidder shall be entitled to a prospecting licence or a mining lease, as applicable, by the concerned State Government

The Applicable Floor Price for e-auction shall be the highest IPO of Qualified Bidders.

The Qualified Bidder submitting the highest final offer shall be declared as the “Preferred Bidder”

Coal Mine Development and Production Agreement (CMDPA) shall be executed with the Successful Bidder

Vesting Order shall be issued to the Successful Bidder in accordance with applicable law post payment of upfront amount and submisison of performance security

Upon the direction of Central Government, Preferred Bidder will become the “Successful Bidder”

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– 0.25% of the value of estimated geological reserves of the coal mine

capped at Rs. 100 crore for geological reserves up to 200MT; and

capped at Rs. 500 crore for Geological Reserves above 200 MT

– Value of estimated geological reserves shall be equal to the product of

Geological reserves in the coal mine; and

Representative price of relevant grade of coal based on National Coal Index

– Upfront Amount shall be adjusted in full against monthly

payments to the State Govt. Adjustments shall not exceed 50% of aggregate Monthly payments for the year.

– Upfront Amount shall be payable by the Successful Bidder in

four equal instalments of 25% each

PAYMENTS & GUARANTEES…..(1/3)

UPFRONT AMOUNT

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PAYMENTS & GUARANTEES-UPFRONT AMOUNT

Instalment Schedule II of the

Coal

Fully Explored

Mines under

MMDR Act, and

CMSP Act (other

than Schedule II)

Partially Explored

Mines under MMDR Act

and CMSP Act

Payable to

First

Within 40 business

days of execution of

the Agreement

Within 40 business


the Agreement

Within 40 business days

of in-principle approval

the Mining Plan

Nominated

Authority

Second Within 6 months

from the date of

issuance of [Vesting

Order/ Allocation

Order]

Within 15 business


the Mining Lease or

order by the Central

Govt under Section

11 (1) of the CBA

Act, 1957, as the

case may be


of execution of the

Mining Lease or order by

the Central Govt under

Section 11 (1) of the CBA

Act, 1957, as the case may

be

State

Government

Third Within 9 months

from issuance of

[Vesting Order/

Allocation Order]

Within 15 business

days of grant of the

Coal Mine opening

permission


of grant of the Coal Mine

opening permission

State

Government

Fourth Within 12 months

from issuance of

[Vesting Order/

Allocation Order]

Within 15 (business

days of

commencement of

coal production


of commencement of coal

production

State

Government

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FIXED AMOUNT PERFORMANCE SECURITY

— Successful Bidder shall pay the Fixed Amount prior to issuance of Vesting Order.

— It shall include :-

Value of land and mine infrastructure

Cost of clearances, consents etc.

Cost of Geological Report

Cost incurred by CMPDIL and other Government agencies in deriving detailed geological boundary coordinates and in preparing geological report, mine dossier along with applicable taxes

— For Fully Explored mines,

65% of aggregate of (a) one year royalty and (b) one year revenue computed on the basis of peak rated capacity of the Coal Mine as per approved Mining Plan

— For Unexplored/ Partially Explored mines:

before in-principle approval of mining plan,

equal to 25% of estimated exploration expenses.

After in-principle approval of mining plan, same as fully explored mines.


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Monthly payments - – Shall be made on the basis of the Final Offer (% revenue share

quoted) and monthly revenue

– Revenue share for this purpose shall product of: i. Final Offer

ii. Quantity of coal on which statutory royalty is payable during the

month

iii. Notional Price or Actual Price, whichever is higher, where

Notional Price is the price arrived at after adjusting the

Representative Price with sub-index of National Coal Index of the

relevant basket of coal grade(s) on the date on which royalty

becomes payable. Representative Price shall be a product of:

a) weights of the Base year; and

b) Latest available prices of these components at the time of issuance of

the Tender Document

Actual Price shall mean the sale invoice value of coal, net of statutory

dues.

– Other Statutory dues including taxes, royalty contribution to NMET and

DMF etc. shall be payable as per Applicable law


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OTHER KEY TERMS

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02

05

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– At least 65% of scheduled production each year

– At least 75% of scheduled production over block of 3 years

FLEXIBILITY IN COAL PRODUCTION SCHEDULE

No restriction on the sale and/ or utilisation of coal from the coal mine including sale to affiliates and related parties, captive consumption, coal gasification, coal liquefaction and export of coal etc.

SALE AND/OR UTILISATION OF COAL

After completing the prospecting operations as per the mandatory work program

RELINQUISHMENT OF PARTIALLY EXPLORED MINE

Exploitation of CBM and minor minerals present in the coal field allowed in accordance with applicable policy

RIGHT TO EXPLOIT CBM AND MINOR MINERALS

– 50% rebate in revenue share for early production

– 20% rebate on quantity of coal consumed and/or sold for coal gasification provided at least 10% of scheduled annual coal production is consumed and/or sold for gasification and liquefaction

INCENTIVES

– Security creation through mortgage over the coal mine has been allowed.

– Change in control allowed. .

FINANCING