In a lifeline to private power producers, the Ministry of Coal has proposed that power plants, except for captive power, be exempted for now from securing coal supply linkages through auction.
The proposal, say sources, limits the auction process only for non-regulated sectors — cement, steel/sponge iron, aluminium and fertilisers — which would have to participate in several rounds of bidding to arrive at the “premium” to be paid over the run-of-mine price of Coal India Ltd.
E-auction of 10 per cent of Coal India’s output in the last five years has shown that premiums ranged between 50 to 60 per cent above the run-of-mine (ROM) prices. The unregulated sectors’ demand for fiscal 2015-16 is pegged at nearly 200 million tonnes. It pays a different ROM price compared to the regulated sector.
An inter-ministerial committee, set up by the ministry, believes that there is no justification for providing coal at a price less than the market price to non-regulated power sector players because their market was unregulated and the price of the final product was determined by market forces.
It reasons that the benefit of low price of coal is not passed on to the consumers but pocketed by the manufacturers as profits.
Therefore, it suggested that unregulated sector firms that hold fuel supply agreements (FSA) be allowed to procure coal at the government-nominated prices from Coal India until end of this fiscal, after which FSAs that mature or expire in fiscal 2015-16 and beyond would not be renewed.
Coal volumes freed on expiry of these FSAs would be made available for linkage auction along with 25 per cent of Coal India’s incremental production each year. As a thumb rule, about 75 per cent of the annual output would be set aside for the power sector with the rest distributed among non-power sectors. Within the unregulated sectors, the ministry would make sector wise allocation with separate quantities earmarked for sub-sectors which would compete within themselves in the auction.
However, government-owned companies operating in these sectors would continue to get coal at nominated prices until the level indicated in their FSA. They would have to participate in the auction for any demand over and above the FSA quantity.
The linkage auctions would be held every six months or annually depending on Coal India’s production estimates. The methodology for the auction would be supplier-controlled non-discriminatory Ascending Clock Auction where the premiums are increased till demand-supply equilibrium is established.
The initial floor price would be set at ROM price and if bids are received for quantity greater than link quantity, then the floor price is increased in steps. Auction would stop when bids are received for the exact quantity offered. Each bidder within the sub-sector would pay the same price.