Coal India (CIL) will take steps to prevent cartelisation in e-auction, which resulted in a sharp decline in the premium that it got from the sales.

Parliamentary standing committee chairman on coal and steel Kalyan Banerjee told FE that a report has been placed in Parliament, pointing out the existence of a cartel of a few traders, who take away the entire e-auction coal, preventing smaller players to take part in it.

?These traders, over the years, have created such monopoly that they have been able to regulate prices to their benefit,? Banerjee said. The report says: ?E-auction by CIL doesn’t give a fair chance of participation to end-users and benefits only big traders and influential parties. Big traders purchase coal through e-auction at comparatively cheaper prices by forming a cartel and make small-scale industries buy from them.?

The biggest hit was felt last fiscal, with e-auction prices dropping 24.1% y-o-y to R2,232 per tonne in Q3FY14 from R2,941 per tonne in the year-ago period. But supplies via the e-auction route increased to 15.1 mt in Q3FY14 from 10.5 mt in the year-ago period.

Further, realisation per tonne from e-auction sales during the fourth quarter last fiscal was down 4.2% q-o-q and 7.3% y-o-y to R2,139 crore. But supply via this route was up to 17 mt against 15 mt.

Union coal & power minister (MoS) Piyush Goyal has asked CIL to cut down on e-auction, but the entire mechanism needs to be re-visited to break the cartel, a CIL director said on the condition of anonymity.

The country?s coal demand is 773 mt against supplies of 574 mt. Of the 574 mt supply, CIL produced 462 mt in FY 14. Although it was mandated that CIL push 10% of its total production to the e-auction route, in FY14, it pushed 58 mt, or nearly 12%, of its total output to e-auction.

The coal ministry is trying to act on the parliamentary standing committee report, but small consumers have no other source of coal. ?Small-scale industries buy coal from big traders at a higher price, but, in many cases, payments for such purchases are made in instalments and after the end-use of the coal. For many small players, e-auction is the only way to source coal even if at a higher price,? said TP Das, vice-president, Coal Consumers? Association of India (CCAI). He added that the ministry should consider keeping the absolute quantity of e- auction sales constant ? an increase in overall production would reduce e-auction sales in percentage terms.

He said though there was a huge fall in the premium charged for e- auction coal, the difference between e-auction price and notified price was between R950 and R700 per tonne in FY 14. People were ready to take coal at a higher price as there was demand, Das said.

During Q4FY14, CIL realised an average R1,539 per tonne from normal sales and R2,139 per tonne from e- auction sales.

Decreasing e-auction would surely impact CIL?s top- as well as bottom-line, but supplying only washed coal, which the minister wants, could be a compensatory measure, a CIL official said.

According to Subhasri Chaudhuri, secretary general of CCAI, reducing e-auction sales and increasing linkage quantity was a welcome step.

The ministry has stopped giving linkage to industry since 2007. An industry consuming more than 4,200 tonne per year is entitled to linkage. Consumers consuming up to 4,200 tonne per year come under FSA, but CIL signs an annual contract quantity (ACQ), which is 75% of a company?s normative requirement.

Again, the trigger level is 60% of the ACQ for consumers who signed FSA before 2007 and 50% of ACQ for new consumers.