KOLKATA (miningweekly.com) - It seems that auctioning is the flavour of the season for the Indian government, which has introduced a proposal that major Coal India Limited (CIL) adopt this route to contract long-term supply linkages with end-users.

After setting the ball rolling for auctioning of coal blocks and mineral assets to user industries, the Indian government has now established a committee, which included the CIL chairperson, to explore the viability of adopting auctions as a process for the coal miner to ensure supplies to bulk consumers in the power, cement and steel sectors, an official said.

The move was to ensure a ‘fair price’ for CIL, which sold coal in the domestic markets under long-term supply agreements with user industries, far below prevalent international prices of the dry fuel, he added.

However, he conceded that the "idea was still at a very nascent stage and will have to go through several hurdles and contentious issues, including opposition from long-term consumers of coal, before it might get into play at some future date".

The first meeting of the committee, comprising representatives from the Steel, Mines, Finance and Power Ministries, was held earlier this month, where only very preliminary discussions on the basic idea of selling CIL’s long-term supply contracts through auctions took place, and no actual course of action was determined, he said.

But an official in a government-owned power company said that the sale of CIL production through auction would be ‘unworkable and unviable’, given the impact it would have on the thermal power sector where f electricity tariffs to consumers were regulated.

At present, CIL supplied dry fuel to thermal power plants at notified prices, as electricity tariffs were regulated and consumers were offered protection from the impact of high coal prices.

For sectors like steel and cement, where prices of end products were unregulated and market determined, CIL supplied coal at 35% above the notified price. However, both the notified price as well and non-notified prices were far below prevailing international prices of imported coal.

Simultaneously, for coal supplies to smaller user industries with lower quantitative demand for the fuel, CIL coal was made available through e-auctions, though such sales accounted for a mere 7% of the miner’s total production.

There was no clarity evident on any kind of mechanism that could be adopted on protecting electricity consumers from being burdened by high price of coal which thermal power companies would inevitably have to pay if coal supply linkages had to be ensured through high bid offers in auctions, the power company official pointed out.