Non-regulated players wary of shift to auction for coal linkages

It is expected Coal India will open a separate e-auction window for non-regulated power sector players, for an amount of four mn tonnes

Companies in non-regulated sectors, including cement, iron and steel, sponge iron, aluminium and fertilisers, have objected to the Centre's move to introduce auction for coal linkages.

They have urged the government not to hastily shift to a supplier-controlled ascending market clearing auction methodology, in which prices are increased till demand-supply equilibrium is achieved, from the current system of allocation through a standing linkage committee.

It is expected Coal India will open a separate e-auction window for non-regulated power sector players, for an amount of four million tonnes.

An inter-ministerial committee has sought feedback on the new method, as it believes there is no justification for providing coal at a price less than the market price to non-regulated power sector players because the market isn't regulated and the price of the final product is determined by market forces. This does away with a level playing field in the sector, favouring those with linkages.

Sources told Business Standard the e-auction methodology would be implemented after collection of data on sector-wise supply and demand.

The Confederation of Indian Industry has suggested proportionate allocation across different end-use sectors and consumers, based on the demand-supply gap and transportation availability. It said the proposed methodology of auction might lead to unsustainable price discovery, as demand for coal is much more than availability and Coal India is the only supplier.

The Cement Manufacturers' Association proposed, the current fuel supply agreement system be continued and the implementation of the suggested market-based allocation mechanism be carried out only after development of infrastructure such as ports and railways to facilitate movement of coal.

While the Sponge Iron Manufacturers Association said the sector shouldn't be clubbed with cement and captive power producers, the Indian Captive Power Producers Association expressed concern that the auction and market-based allocation would only help consumers within the vicinity of auction pit heads, while those far away would be deprived.