Coal India Limited Auction of Coal Linkages to Power Producers/IPP(s) without PPAs under Clause B(iii) of SHAKTI Policy

Pre Bid Presentation

This presentation is for ease of understanding of the Scheme by the Bidders. In case of any discrepancies between this presentation and the Scheme Document, the provisions of the Scheme Document will prevail.

2020

BACKGROUND

AGENDA

SHAKTI POLICY (1/2)

2

MOC vide letter dated 22nd May, 2017 issued the guidelines for Signing of Fuel Supply Agreement (FSA) with Letter of Assurance (LoA) holders of Thermal Power Plants- Fading Away of the existing LoA-FSA Regime and Introduction of a New More Transparent Coal Allocation Policy for Power Sector, 2017- SHAKTI (Scheme for Harnessing and Allocating Koyala (Coal) Transparently in India), hereinafter referred to as the “Policy”.

Para B(iii) of the Policy states that:

CIL/SCCL may grant future coal linkages on auction basis for Power Producers/IPPs without PPAs that are either commissioned or to be commissioned.

The methodology for bidding of linkages shall be similar to the bidding methodology in the policy on auction of linkages of Non-Regulated Sector dated February 15, 2016.

Coal drawal will be permitted only against valid long term and medium term PPA with Discoms/State Designated Agencies (SDAs), which the successful bidder shall be required to procure and submit within two years of completion of auction process

Accordingly, CIL inter alia proposes to auction coal linkages, as per Paragraph B(iii) of the Policy pursuant to a non-discriminatory ascending clock auction process conducted on the Electronic Platform.

Bid parameter shall be Premium over Notified Price of coal.

SHAKTI POLICY (2/2)

3

Auction methodology shall be Non Discriminatory Ascending Clock Auction.

Auctioneer increments the Premium on electronic platform till demand supply equilibrium is established

Premium shall remain constant over contract period; Notified price to be paid may be suitably indexed on semi annual basis

Bidders can bid up to normative annual coal requirement of the end use plant (EUP)

FSA shall be signed with the successful bidders after the terms and conditions for signing of FSA are met.

The Successful Bidder shall be required to submit valid PPA(s) and Certificate from DISCOM(s) within 2 years of Completion of the Auction Process and start drawing coal within 2 years of submission of these documents.

Based on experience of Tranche I, operational details may be appropriately reviewed

Coal Linkage

4

Coal linkage is being auctioned strictly for prospective consumption by the Specified End Use Plant(s) of the Bidders

Transfer, and/or sale of any Allocated Quantity, shall not be permitted, in any manner whatsoever

Swapping and/or rationalization of coal shall be as per the extant applicable policy/guidelines.

SHAKTI AMENDMENT

5

In the event of termination of the PPA in case of default in payment by the DISCOM, the relevant Successful Bidder(s) shall be allowed to use the ACQ in respect of such PPA for sale of power through short-term PPAs using the Discovery of Efficient Energy Price (“DEEP”) portal or power exchange for a maximum period of 2 (two) years or until the Successful Bidder finds another buyer of power under long/medium term PPA, whichever is earlier.

The methodology in this regard shall be formulated subsequently.

Adequate safeguards issued by the Ministry of Power vide Office Memorandum dated August 30, 2019, as amended from time to time, shall be duly complied with.

Net surplus after meeting operating expenses generated in this manner shall be entirely used for servicing debt in the first place, as per the mechanism prescribed by the Ministry of Power vide Office Memorandum dated August 5, 2019 and Office Memorandum dated August 20, 2019, as amended from time to time.

AUCTION PROCESS

The E-Auction Process

INVITATION STAGE ELIGIBILITY/CONDITIONS TO AUCTION

AUCTION STAGE

FINAL STAGE

Publication of Notice inviting registration

Registration Expression of

Interest Detailed Scheme

Document

Verification by CEA

Conditions to Auction (Submission of Bid Security & Process Fee along with required documents)

Submission of Bids for the lot wise auction

Declaration of Successful Bidders

Submission/ verification of documents

8

Tentative Timeline for Auction

S.No. Event Date

1 Notice Inviting Registration Tuesday, 10 December 2019

2 Publication of EoI and start of acceptance of the same Friday, 13 December 2019

3 Publication of approved Scheme Document Friday, 20 December 2019

4 Last date for registration and EOI submission Tuesday, 7 January 2020

5 Verification and intimation by CEA Thursday, 16 January 2020

6 Bidders to log in online and check their eligibility and normative coal requirement Friday, 17 January 2020

7 Start date for seeking clarifications from CEA on eligibility normative coal requirement

Friday, 17 January 2020

8 Pre Bid meeting Friday, 24 January 2020

9 Start of receipt of queries Friday, 24 January 2020

10 Start date of period of submission of information, documents and payments pertaining to Conditions to Auction

Saturday, 25 January 2020

11 End date of period of submission of information, documents and payments pertaining to Conditions to Auction

One business day prior (till 18:00 hrs IST) to the date of auction of the lot in which bidder intends to participate

12 End date for seeking clarifications from CEA on eligibility and normative coal requirement & Receipt of Queries

Monday, 27 January 2020

13 Publication of Q&A Friday, 31 January 2020

14 Mock Auction Monday, 3 February 2020

15 Scheduled Start of Auction Wednesday, 5 February 2020

Eligibility Conditions

9

Basic Eligibility Criteria

Bidder should not have any valid PPA as on May 17, 2017, in respect of such capacity of the Specified End Use Plant(s) for which it is desirous of participating in the Auction

On or before May 17, 2017, the Bidder should not have any document signed by any DISCOM as PPA.

In the event the Bidder has a valid PPA dated after May 17, 2017, such Bidder shall be permitted to participate in the Auction.

If the Bidder is unable to submit the requisite DISCOM certificate, rendering him ineligible to participate under B(ii) auctions, he will be permitted to participate in B(iii) auctions.

Bidder will be required to submit a valid PPA within 2 years of auction for signing of the FSA.

However, on a later date if the IPP bidder gets a DISCOM certificate of having a valid PPA (prior to May 17, 2017), he may be allowed to participate in future B(ii) auction. In that case, once FSA for B(ii) linkage is signed, Letter of Assurance (LoA)/ Linkage/ FSA for B(iii) will automatically be terminated.

Eligibility Conditions

10

Additional Eligibility Criteria

In respect of the capacity of the registered Specified End Use Plant against which (i) the Bidder does not have a valid PPA existing as on May 17, 2017, or (ii) the Bidder is unable to submit the requisite DISCOM certificate, as the case may be, the Bidder shall:

(i) not have coal linkage; or (ii) have coal linkage for less than 90% of the coal requirement for the aforesaid capacity, computed as per Consumption Norms; and

(i) not have coal block pursuant to Applicable Law; or (ii) have coal block not meeting the coal requirement for the aforesaid capacity, computed as per Consumption Norms.

It is hereby clarified that with respect to such Specified End Use Plant, the Bidder whose coal block(s) has(ve) been deallocated and the Bidder furnishes clearance of MoC to this effect, on or before the last date for submission of EOI, may also participate in the Auction, if such Bidder does not, as on the last date of submission of EOI, hold any allocated coal block in respect of such Specified End Use Plant.

The Bidder should be the owner of the Specified End Use Plant registered.

The Bidder shall not have been convicted for wrongful utilization of coal by the Central Bureau of Investigation or any other governmental authority or statutory or judicial body.

In case the Bidder is an existing linkage holder who had linkage(s) as on May 17, 2017, such Bidder shall not have surrendered/terminated or diluted their letter of assurance/fuel supply agreement to participate in this Auction.

Power of Attorney, Affidavit and Undertaking are required to be submitted as per format

Determination of Normative Coal Requirement

11

Normative Coal Requirement (MTPA)

Normative Energy Requirement (Kcal per annum)

109 x GCV of G13 Grade of Coal

Normative Energy

Requirement (Kcal per annum)

Annual energy requirement of

the Specified End Use Plant for the capacity against which the Bidder does not have a valid PPA or is

unable to submit DISCOM

certificate

Annual energy requirement of the Specified End Use Plant met through

any captive coal mine(s) on the basis

of peak-rated capacity

Adjustment for any existing

coal linkage(s) 90%

• Adjustment for annual energy requirement of the Specified End Use Plant met through any captive coal mine(s) on the basis of peak-rated capacity shall be net of any adjustment made during auction of coal linkages under paragraph B(ii) of the Policy, if applicable.

• The annual energy requirement met through the captive coal mine shall be net of any energy requirement for the sale of power on merchant basis.

• For the purpose of computation of Normative Coal Requirement, capacity shall be gross capacity at generation end. • The percentage requirement of the capacity of the Specified End Use Plant : (i) which is not backed by any valid PPA(s), or (ii) for which

the Bidder is unable to submit the requisite DISCOM certificate, as the case may be, against which there is existing coal linkage, including any existing fuel supply agreement and/or fuel supply agreement to be executed pursuant to any existing letter of assurance, shall be excluded. The SHR shall be considered as applicable for the unit-wise capacity of the Specified End Use Plant.

• It is clarified that, for the purposes of computation of the Normative Energy Requirement basis the abovementioned formula, at any stage of the Auction Process, the annual energy requirement of the Specified End Use Plant met through any allocation of coal linkage(s) pursuant to the Auction of any Lot conducted by CIL and/or by SCCL under Paragraph B(iii) of the Policy shall be deducted, irrespective of the status of issuance of the LOA or signing of the FSA.

Conditions to Auction

12

Subject to satisfaction of the following conditions, the Eligible Bidder shall be entitled to participate in the Auction:

Submission of EOI

Payment towards Bid Security and Process Fee and (i) Rs. 100/tonne of Bid Security; and (ii) Rs. 2.10/tonne of Process Fee;

An undertaking in the format required;

A power of attorney in the format required;

Certified true copy of the relevant authorizations authorizing the execution of power of attorney e.g. letter of authority, resolution of the board of directors, resolution of the shareholders etc.;

An affidavit in the format required.

Bidding Parameters and Source-wise quantity

Bidding Parameters

The auction will commence at the Reserve Price (Floor Price) and the bidders shall bid for

premium above the Reserve Price and for a particular Quantity.

Reserve Price

Reserve Price shall be the notified price of the Source Grade

Each source may have an indicative range of grades but for the purpose of energy balance, an average/representative grade will be considered (“Source Grade”).

However, the actual supply may vary between/beyond a range of Grades / GCV as per the given source.

13

Auction Process…1

Online Electronic Auction Platform

Registration on Auction Platform; No physical bids

Conditions to Auction

Auction Platform to display Normative Coal Requirement

Non-Discriminatory Ascending Clock Auction

Process Increase in Premium till Demand Supply

equilibrium is established

Method of Bidding – Non-Discriminatory Ascending Clock Auction Process

Auction Process…2

15

Coal quantity will be allocated by Non-Discriminatory Ascending Clock Auction

Lots shall be auctioned sequentially

For a particular Lot,

– The auction process shall be conducted in rounds

– Floor Price for the first round shall be the Notified Price

– The Auction Platform will calculate the premium for each auction round depending on the Demand – Supply Ratio of the immediately preceding round

𝐷𝑒𝑚𝑎𝑛𝑑 𝑆𝑢𝑝𝑝𝑙𝑦 𝑅𝑎𝑡𝑖𝑜 % = 𝑇𝑜𝑡𝑎𝑙 𝐵𝑖𝑑 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑜𝑓 𝑎𝑙𝑙 𝐵𝑖𝑑𝑑𝑒𝑟𝑠 𝑖𝑛 𝑎 𝐿𝑜𝑡 (𝑇𝑃𝐴)

𝐿𝑜𝑡 𝑆𝑖𝑧𝑒 (𝑇𝑃𝐴)

– Bidders are required to indicate quantity (“Link Quantity”) against premium quoted for each successive round of auction

– The Bidders cannot increase the quantity between the previous and subsequent round

– Not entering any quantity in a particular round will imply “Zero” quantity entered and therefore the bidder will not be able to bid for any quantity in the subsequent rounds.

– Auction stops when Demand Supply Ratio is less than or equal to 100% for a particular round

– The round at which the auction stops and penultimate round will be compared and the sale of coal from the round generating maximum revenue will be selected

16

The Bid Quantity (“Link Quantity”) will be the minimum of Normative Coal

Requirement or the quantity offered in a particular Lot, subject to payment of Process

Fee and Bid Security.

The Link Quantity will be integer multiples of the 100 TPA, the “Transport Factor”

At the end of each round, bidders will be told the Demand Supply Ratio of that round

and the corresponding Premium of the next round and the bidder shall quote the Link

Quantity required under each Round subject to the following conditions:

— The Link Quantity is lower than or equal to the Link Quantity quoted in the previous Round

— The Link Quantity will be an integer multiple of 100 TPA

Auction Process…3

Auction Process…4

17

Premium for the first round will be Rs. Zero/ tonne

Round Premiums (other than the first Round) will depend on the Demand/Supply Ratio of the

immediately preceding round and will be determined by the Auction Platform as follows:

Premium would be cumulative i.e. Premium for a particular round would be the premium at

the preceding round plus the premium computed for the current round.

Demand/Supply Ratio in a particular round Incremental Round Premium (Rs. per tonne)

Greater than 100% and less than or equal to 125% 10

Greater than 125% and less than or equal to 200% 25

Greater than 200% and less than or equal to 300% 50

Greater than 300% 100

18

Example - Non-Discriminatory Ascending Clock Auction

30 MT @ INR 860/tonne

20 MT @ INR 960/tonne

Ascending Price with Demand Converging to 9 MT Quantity Offered

15 MT @ INR 1010/tonne

13 MT @ INR 1035/tonne

11 MT @ INR 1060/tonne

9 MT @ INR 1070/tonne

100/tonne as Demand/Supply 333%

50/tonne as Demand/Supply 222%

25/tonne as Demand/Supply 166%

25/tonne as Demand/Supply 144%

10/tonne as Demand/Supply 122%

Price Increment

Auction Process…5

19

Each round will be considered a valid offer to purchase the Link Quantity at the stated price. Moving to the next round does not mean the previous offer is discarded or becomes invalid.

The auction will stop once the Demand Supply Ratio is lower than or equal to 100%.

In case in any of these rounds the Demand Supply Ratio is more than 100%, bidders will be allocated their pro-rata share (rounded down to the nearest multiple of the Transport Factor).

For example in case the pro-rata allocation of a bidder is 13,615 TPA for a Lot, the final allocation to be computed by the portal would be 13,600 TPA.

The revenue from the last and the penultimate rounds will be compared and the and the round generating maximum revenue for CIL will be selected.

For rounds where Demand Supply Ratio is more than 100%, the rounded down pro-rata quantity will be used for calculating the revenue to CIL.

Example – Allocated Quantity …2

20

If the round at which the auction stops has Demand Supply ratio of 98% with a notified price of Rs 1,420/tonne and total premium of Rs 360/tonne. The penultimate round has Demand Supply ratio of 102% with a notified price of Rs 1,420/tonne and total premium of Rs 350/tonne. In such a scenario, for comparing the two round, following methodology will be considered:

Since revenue at the penultimate round is more than the revenue in the round at which the auction stops, CIL may choose this round and allocate each Bidder their pro-rata share with a premium of Rs. 350 per tonne

Allocation and Revenue Calculations for Penultimate Round

Allocation and Revenue Calculations for Round at which the auction stops

Description Bidder 1 Bidder 2 Bidder 3 Bidder 1 Bidder 2 Bidder 3

Link Quantity (TPA) 52,900 47,100 1,04,000 48,000 44,000 104,000

Pro-rata Allocated Quantity (TPA) 51,863 46,176 101,961 NA NA NA

Final Allocated Quantity (TPA) 51,800 46,100 101,000 48,000 44,000 104,000

Total Quantity Available for Sale 1,99,800 TPA 1,96,000 TPA Notified Price Rs. 1,420 per tonne Rs. 1,420 per tonne Applicable Round Premium Rs. 350 per tonne Rs. 360 per tonne Total Applicable Price Rs. 1,770 per tonne Rs. 1,780 per tonne Total Annual Revenue Rs. 35.36 Crore Rs. 34.88 Crore

PAYMENTS

Bid Security

22

Bidder shall furnish, a bid security in the form of an Earnest Money Deposit (EMD)

The Bid Security shall be Rs. 100 per tonne of the quantity the bidder intends to bid across various Lots

The payments made by Bidders towards the Bid Security shall be collected in a designated bank account as mentioned in the Scheme Document

The Bidder shall ensure that at any time during the auction process, its Bid Security is adequate vis-à-vis the intended Link Quantity

a) The Bidder has the flexibility to top up the Bid Security at least 1 business day prior to the scheduled auction of Coal Linkages pertaining to the Lot

b) Under no circumstances, shall the bidder be allowed to bid for a quantity for which the Bid Security has not been deposited

Bid Security

23

Refund of Bid Security

• As and when the Bidder submits (a) valid PPA(s) and (b) Certificate(s) of DISCOM(s), then in accordance with the terms of the FSA the proportionate amount of Bid Security, corresponding to the Allocated Quantity of the Successful Bidder against which a the documents mentioned above are submitted, shall be returned by the relevant Subsidiary to the Successful Bidder(s), without any interest, upon the expiry of 30 (thirty) days from the First Delivery Date of such Allocated Quantity.

• the balance Bid Security of the Successful Bidder (net of amounts retained above), if any, and the Bid Security of other Eligible Bidder(s) shall be returned by the Service Provider to the Successful Bidder or Eligible Bidder(s), as the case may be, without any interest, after Completion of the Auction Process

Forfeiture of Bid Security

• The Bid Security shall be forfeited as per the conditions defined in the Scheme Document.

Process Fee

24

Along with Bid Security, the Bidders shall also be required to submit a process fee in the form of an earnest money deposit within the stipulated timeline which is Rs. 2.10 per tonne (inclusive of GST) multiplied by the Link Quantity across various Lots

The Bidder shall ensure that the Process Fee shall, at any time during the auction process, correspond to its intended Link Quantity across various Lots

In case a Bidder decides to change the bidding strategy by opting to Bid for a different Link Quantity in a specific Lot, which requires additional Process Fee to be paid, the Bidder shall be required to top up the Process Fee no later than 1 business day prior to the scheduled auction of the Coal Linkages from the relevant Lot

The payments made by Bidders towards the Process Fee will be paid into a bank account as stipulated in the Scheme Document

The Process Fee pertaining to the Allocated Quantities of each Successful Bidder will be debited towards transaction expenses for running the auction process and the balance shall be refunded, without interest after Completion of the Auction Process.

In the event that a Bidder does not qualify as a Successful Bidder, the entire amount of the Process Fee, without any interest, shall be refunded to such Bidder after Completion of the Auction Process.

25

Periodic Payments & Price Indexation

The premium determined through the auction process will be converted into percentage terms i.e. percentage of the notified price and this percentage premium will remain constant throughout the tenure of the FSA

Notified price may be reviewed semi-annually and any modification (upward or downward) in the notified price post such review shall be considered as indexation and such modified price will be referred as “Indexed Notified Price”.

The price charged will be the sum of (a) notified price (or indexed notified price post review if any) and (b) the percentage premium multiplied by such notified price (or indexed notified price).

An example is worked out below Original Notified Price (Rs./tonne) 1,420 Premium (Rs./tonne) 200

Total Price Payable by Successful Bidder (Rs./tonne) 1,620 % Premium over Notified Price (to remain constant) 14.08% Upward Revised Notified Price (Rs./tonne) 1,700

Premium Payable @ 14.08% of Rs. 1,700 / tonne 240 Total Price Payable by Successful Bidder after Price Revision (Rs./tonne) 1,940

Downward Revised Notified Price (Rs./tonne) 1,200 Premium Payable @ 14.08% of Rs. 1,200 / tonne 169 Total Price Payable by Successful Bidder after Price Revision (Rs./tonne) 1,369

OTHER KEY TERMS

Lots

27

‘Lot’ shall mean a specified quantity of coal which is to be offered from a particular

Source.

Each Lot will contain, among others, a Source and a Source Grade which shall be the

average/representative grade of that Source.

The Auction shall be conducted on the basis of the Source Grade and the actual supply

may vary between a range of grades/GCV of each Source.

However, the Winning Premium shall remain fixed and shall be payable by the Successful

Bidder corresponding to the grade of coal actually supplied.

Details of Lots have been provided in the Scheme Document in the following format:

S. No. Subsidiary Name Source Mode Indicative Range of Grades

Source Grade Notified Price (Rs./Tonne)

Auction Sequence

28

Auction will be conducted sequentially and the sequence of Lots will be provided upfront to the Bidders.

3 Lots will be put up for auction each day as under

First round of auction will be of 15 mins followed by subsequent round(s) of 8 mins each. The process will continue till the Demand Supply Ratio is less than or equal to 100% for a particular round

This process will be repeated each day for auction of subsequent lots i.e. Lot 4 will be put up for auction on Day 2 at 11:00 hrs, Lot 5 at 14:00 hrs and so on

In case the auction of any Lot spills over to the time of the next Lot(s), then the auction of next Lot(s) will be deferred and will be conducted at the end of auction of the last Lot as per the auction sequence.

For Example: There are 15 Lots (numbered L1 to L15) with a proposed auction sequence of 3 Lots per day at 11:00 HRS, 14:00 HRS and 17:00 HRS respectively. In case the auction of Lot L1 continues till 17:01 HRS on Day 1, auction of Lot L2 and Lot L3 will be deferred and will be conducted after the auction of Lot L15.

Lot No. Time of Day

1 11:00 hrs

2 14:00 hrs

3 17:00 hrs

Submissions by Successful Bidder

29

I Submission of Documents and Information under Annexure X

Subject to the overall timelines prescribed in II below, each Successful Bidder shall submit the documents and information specified in Annexure X of the Scheme Document to the relevant Subsidiary:

a) Within 75 (seventy five) days of issuance of the LOA to the Successful Bidder, in case the capacity of the registered Specified End Use Plant in respect of which the Bidder is the Successful Bidder is commissioned; or

b) Within 75 (seventy five) days of commissioning of the capacity of the registered Specified End Use Plant in respect of which the Bidder is the Successful Bidder, in case the same is yet to commission.

II Submission of PPA and drawal of Coal

The Successful Bidder shall be required to procure and submit the following documents, within 2 years of Completion of the Auction Process:

(a) Valid PPA(s); and

(b) Certificate(s) of DISCOM(s) in the format specified.

Coal drawal by the Successful Bidder shall be permitted only against submission of all documents set out.

In the event the Successful Bidder does not (i) submit the documents set out within 2 years of the Completion of the Auction Process; and/or (ii) start drawing coal within 2 years of submission of all the documents set out, the corresponding FSA and/or the LOA, as the case may be, shall stand terminated and the corresponding proportionate Bid Security and Process Fee shall be forfeited, without an exception for force majeure or any other ground whatsoever.

THANK YOU

New Delhi (Regional Office)

World Trade Tower Fifth Floor Barakhamba Lane New Delhi – 110 001

T: +91 (11) 2348 5200 F: +91 (11) 2341 8773