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Bank guarantees mooted for captive coal blocks

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In the power sector
Projects proposed to be executed by Central and State PSUs to be accorded maximum priority
Next in line come private projects that have bagged tariff approval from regulators

New Delhi , Nov. 15

The Power Ministry has proposed putting in place a set of normative criteria for allotting captive coal block to players in the power sector and having "reasonable" bank guarantees that could be encashed if they fail to achieve certain prescribed milestones in the development of the block.

In its amended priority guidelines for the allocation of coal blocks for the power sector, the Ministry has suggested that if within six months of allotment of the block, "satisfactory progress" is not achieved with respect to financial closure and award of construction contract packages, the allotment may be liable for cancellation, in addition to the encashment of the bank guarantee.

According to the guidelines, projects proposed to be executed by Central and State public sector undertakings are to be accorded maximum priority in allotment of coal blocks, followed by joint venture projects between the Central and State sectors or between the two states. Next in line come private projects that have bagged tariff approval from regulators, followed by projects being developed on the basis of tariff-based competitive bidding, including the proposed Ultra Mega Projects.

With the guidelines in place, the Power Ministry has suggested that the Union Coal Ministry — the nodal agency for allotting blocks — could discontinue the practice of seeking specific recommendations on a case-to-case basis from the Power Ministry. Instead, the Secretariat of the Screening Committee in the Ministry of Coal can examine and clear the proposals on the basis of these guidelines, it has suggested.

"The guidelines have been put in place in light of the past experience where many of the allocated captive coal blocks to different industries did not get developed," a Power Ministry official said. The normative criteria, according to the guidelines, could relate to net worth of the company, their internal resource generation and annual turnover. The guidelines propose that the bank guarantee need to be of a "reasonable amount" which should be liable to be encashed if important milestones for development of coal blocks are not achieved. "The amount should be adequate enough to discourage agencies which apply for allocation and are not serious enough for development of coal mines and power projects," it said.

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