After considering several methodologies for auction of coal linkages, an inter-ministerial committee (IMC) has decided to recommend ‘bucket filling’ and ‘ascending market clearing systems’.
‘Bucket filling’ and ‘ascending market clearing systems’ are meant to align demand and supply at any particular time to discover “dynamic demand”. This allows to calibrate the linkages according to, say, the demand fluctuations witnessed in some user industries like iron & steel.
Currently, the state-owned Coal India (CIL) allocates coal linkages based on recommendations of the standard linkage committee (SLC). The IMC, constituted in January, has been tasked with devising a market-based method that would replace the current system as the government feared that it may fail legal scrutiny after the Supreme Court pronounced a similar system of coal block allocations as ‘illegal’ and ‘arbitrary’ last year.
The decision to opt for ‘bucket filling’ and ‘ascending market clearing systems’ was finalised after some members of IMC pointed towards the cyclical demand trend of some sectors. “The point was raised that the different user groups may be going through different stages of business cycle and hence, there could not be uniform interest among categories to bid in the auction,” the minutes of meeting noted.
As per the minutes of meeting, “Various auction methodologies were considered. The members of the IMC were of the view that bucket filling approach and ascending market clearing approach (followed in telecom radio spectrum auction) were better suited for this purpose.” The state-owned investment bank SBI Capital Markets will work out the details of the auction procedure.
The 16-member IMC has representatives from the power, railways, steel and law ministries also said with the auction of linkages, there could be a shift in the pattern of coal movement and that the CIL and Railways need to plan in tandem. Flow of traffic would need to be such that the railways can serve the winning bidders.