KOLKATA (miningweekly.com) – In a bid to placate opposition, India’s Coal Ministry has proposed that only incremental coal produced by Coal India Limited (CIL) would be earmarked for supplies through auctioned linkages to user industries.
According to a proposal firmed up by an inter-Ministerial committee, user industries would be categorised under cement and aluminium, iron and steel including sponge iron and a residual ‘others’ – and only incremental production achieved by CIL would be offered to these plants through auctioning of supply linkages.
It was also decided that coal supplies through auction would only be offered to industries operating in ‘un-regulated’ sectors wherein prices of end-use products were not administered by the government. The committee was of the view that the power sector, which operates in a regulated pricing environment, would find it difficult to pass on higher cost of coal received through auctioned linkages to electricity consumers.
The committee was yet to fix the tenure of supply linkages to be put up for bids. Investment banking and financial services advisory firm SBI Capital Markets, which the Coal Ministry mandated to frame rules of the auctions, recommended a ten-year tenure. However, a section of committee members suggested a tenure of five years, the same as negotiated fuel supply agreements (FSAs) between CIL and large consumers of coal.
SBI Capital Markets also pointed out that since coal supply agreements were shifting towards a market-based mechanism through the auctions, it would be necessary to establish a mechanism to specify coal grades and a sampling model that would be acceptable to both supplier and buyer of the fuel.
In a media statement, Coal Secretary Anil Swarup said that the Ministry had accepted the recommendations of SBI Capital Markets and rules to establish the market-determined pricing regime would be finalised by June 30.
The decision to auction linkage only to un-regulated sectors cleared the air of uncertainty hanging over the power sector.
Earlier, new thermal generation capacity of 15 000 MW had come under a cloud since CIL had been directed not to conclude FSAs with these projects pending finalisation of the supply linkage auction. According to Ministry officials, these thermal projects would be able to start negotiations about FSAs, now that the committee had decided to keep the power sector outside linkage auction.
The coal linkage auction proposal had come under fire from small- and medium-scale industries on grounds that smaller industrial manufacturers and coal users did not have the financial wherewithal to bid for fuel supplies. They argued that large industrial conglomerates would corner the supply linkage through aggressive bids and CIL would be squeezed of volumes to be supplied through either e-auctions or at notified prices.
According to a Ministry official, the decision to earmark only incremental coal produced by CIL and reserving a few coal blocks for exclusive supply to small- and medium-scale manufacturing units would address these issues.