‘Coal sector to be overhauled for transparency’

By: | Published: February 26, 2015 12:50 AM

Following the “success” of the coal block auctions, the government is set to overhaul its decades-old, opaque coal linkage policy...

Supreme Court, Coal blocks, Coal ordinanceCurrently, the government grants coal linkages with assurance of supplies from Coal India on an ad hoc basis. (Reuters)

Following the “success” of the coal block auctions, the government is set to overhaul its decades-old, opaque coal linkage policy and the methodology for price determination under fuel supply agreements, coal secretary Anil Swarup told FE. The idea is to bring more transparency and predictability to the process.

He also hinted that once the existing end users are comforted with assured fuel supplies, the government could invoke the enabling provision in the recent coal ordinance to allow commercial coal mining by the private sector as it is fully cognisant of the benefits of bringing in foreign direct investment and better technology into the sector.

The secretary said the aggregate benefit to the states concerned from the coal block auctions concluded so far would be to the tune of R1.22 lakh crore — R1.09 lakh crore as revenue from auction and R12,500 crore as royalty — over the next three decades. Additionally, he said, the savings to households and other users of electricity due to the reduction in tariffs facilitated by the reverse bidding process would be around R37,000 crore.

“As a ballpark figure, for every R100 per tonne reduction in coal price, the tariff will go down by 6 paise (from what is under the power purchase agreement). So if the fuel cost comes to zero from, say, R700 a tonne earlier, the reduction in tariff will be 42 paise,” Swarup said.

Explaining the rationale behind the proposed review of the coal linkage policy, Swarup said: “(Coal linkage allotment) probably suffers from the same malaise as the coal blocks. It is not as transparent a mechanism as it should be. There could be a question regarding whether there are any objective criteria to decide who should get these linkages. Are there any objective criteria to determine at what price the linkages should be awarded? These are some of the questions we are looking into.”

Swarup added that soon after the second phase of the coal blocks auction is over in early April, the policy change would be initiated.

Currently, the government grants coal linkages with assurance of supplies from Coal India on an ad hoc basis, much like the way it did for allocation of coal blocks to private companies, a method the Supreme Court held arbitrary and illegal. The government is believed to be considering a similar e-auction option of existing as well as future coal linkages to bring about greater transparency.

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