Coal India bets big on e-auction as demand declines

The company is targeting to put on block at least 235 mt of coal in three years to increase revenue

Coal India is falling back on increasing allotments under the auction route as its sales and price realisations to Fuel Supply Agreement (FSA) consumers is feeling the heat, owing to the low demand of the fossil fuel in the domestic market.

While e-auction volumes for the company increased to touch 39.52 million tonnes (mt) in the April-October period of the current financial year, the average price per tonne declined by 27 per cent, at Rs 1,463 a tonne. Nevertheless, the average prices in these auctions were at least 20 per cent higher than the notified price, which earned more revenue for the company.

Even as e-auction prices took a hit, coal prices to FSA consumers fell by three per cent at Rs 1,264 a tonne. These long-term FSAs to the power segment comprise at least 75 per cent of the company’s annual sales.

With FSA sales and prices bearing the brunt, the company is now targeting to put on block at least 235 mt of coal in three years to increase revenue when uncertainty prevails over the future of Indian coal demand and prices.

Coal India had dispatched 489.98 mt coal and coal products in 2014-15 and 534.62 mt in 2015-16. In 2014-15, 60.38 mt was offered in auctions, of which 51.16 got allotted. Similarly, in the previous financial year, 125.52 mt of coal went under the hammer, of which 79.80 mt was allotted. 

This year, the coal monolith has put 120 mt as the auction target.

The company has been auctioning 10 mt of coal (8 mt for the regulated and 2 mt for non- regulated sector) every month through special auction to meet the demand of power plants who either don’t have any FSA with Coal India or lost their mines due to cancellation orders by the Supreme Court.

“The aim is to cater to the entire domestic need of all power related needs and boost our sales,” an official said.

According to the New Coal Distribution Policy, Coal India caters to 80 per cent needs of the power generating companies it has signed FSA with, while the rest can be supplied under e-auctions or met through imports. 

However, aiming for import substitution, the Centre is keen to push the power plants lift the residual 20 per cent coal requirement from auctions.

“The situation has now changed. Previously, power plants faced coal shortage because of which there was adequate demand but now power plants have over seven days of coal supply,” the official said, adding the coal stock at Coal India and power plants were coming down.

Further, with global coal prices on a rise, the official expects private power producers to buy more coal from the auctions. To encourage the private players lift more indigenous coal, Coal India is also offering discounts of 35 per cent for lower grade and 20 per cent for mid-grade coal to power plants.

According to a report from ICICI Securities, as per the government’s new policy, expired linkages’ coal quantity and also 25 per cent of incremental production in previous year would be offered for auction. Also, when the FSAs will expire in 2019, coal will be offered to the power sector under the auction route.

In September 2016, according to the same report, e-auction volumes came in at 20.5 mt, with realisation of Rs 1,570 per tonne, down by 28.1 per cent on a year-on-year basis.

Coal India accounts for 80 per cent of India’s total coal production and has a domestic market share of 65 per cent.