KOLKATA (miningweekly.com) – While India’s Coal Ministry has announced a methodology for auction of coal supply linkages, it is now facing opposition from small consumers on “faulty process and lack of clarity on volumes on offer”.

The Coal Ministry earlier stated that all fuel supplies from producer Coal India Limited (CIL), which accounts for over 80% of domestic supplies, would be allocated through the auction route based on market determined prices.

As a follow up, the Coal Ministry released a draft paper outlining the methodology which stated that an ascending market clearing auction (AMCAS) would be adopted for allocating supply linkage contracts with user industries.

The methodology would involve CIL fixing a basic floor price at the pitheads for predetermined volume offers for tenures of five years. Prices would move up if bids received were greater than the linked quantity and the winner would be declared for the highest price.

Differing quantities of coal would be up for bids for different user industries and the quantities on offer would be up for review periodically, factoring in growth and expansion of each of these industries, as per the Coal Ministry draft paper up for circulation.

Explaining the rationale of the methodology the paper said: “prices will be directed by the auctioneer through algorithmic iteration and will eliminate speculation and large price variations. Clearing price will reflect the overall market equilibrium where demand matches supply at a single price. Also a single price would be more acceptable to all bidders and price discovery would be attained while avoiding unviable prices.”

However, the very issue of price discovery had been questioned by small coal-users. It had been pointed out that India did not have an open market for coal and as such was dominated by monopoly producer CIL, and that the coal sector could not be categorised as a market when the monopoly producer set the floor price without any other benchmark market price available through other competing price discovery mechanisms.

The Chhattisgarh Sponge Iron Producers’ Association, in a meeting with Coal Ministry officials, expressed its view that since the methodology was to match the number of bidders with the quantity of coal on offer it was likely that in the case of higher bids, financially weaker coal users would be eliminated in the prices.

The Indian Captive Coal Power Producers’ Association stated that method of auctioning of linkages would defeat the very holistic goal of ensuring adequate fuel supplies to all segments of industry.

Some industries have expressed doubts over how CIL would determine volumes of coal to be put on offer at respective pitheads, as under an order of the Indian President, the government-owned and -managed CIL had to mandatorily meet the entire requirement of coal for 78 000 MW of installed thermal capacity and would, therefore, need to step up production substantially from current levels to provide significant volumes for the auctions.