Plancom wants rethink on coal e-auctioning

Exceptionally high prices are being realised at e-auction due to increasing shortfall in supply.

Exceptionally high prices being realised at e-auction of coal due to an increasing shortfall in supply have forced the Planning Commission, the government’s apex advisory body, to push for a rethink on the e-auctioning.

The mechanism of allocating coal through e-auction was introduced by the government over four years back with a view to ensure adequate coal supply to the non-core sector and traders at “market-determined price”.

Asked whether the scheme is serving its stated objective of price discovery of the ‘black diamond’, a Planning Commission official said: “Price discovery will come later. The need at this juncture is to step up domestic production.”

He said the context in which e-auction was launched had changed completely today. “We will have to rethink this (the scheme),” he said without sharing any details.

The original plan, envisaged by the Planning Commission in its Integrated Energy Policy (IEP), was to bring about a gradual increase in the amount of coal sold through e-auction from 10 per cent of the overall production to 20 per cent. The Plan has, however, not materialised.

The total allocation of coal through the electronic exchange by state-run Coal India Ltd (CIL) — which supplies bulk of the ‘dry fuel’ for the auction — has never exceeded 12 per cent of the production since the launch of the scheme owing to the perennial shortage of coal availability in the country.

“We would have liked a higher percentage of coal being allocated through e-auction so that market price can be discovered. But recently there has been a gap in the demand and availability of coal. Because of this shortfall, the whole question is a bit difficult now,” the official said.

India currently produces around 450 million tonnes (mt) of coal annually. This, however, falls short of the demand by over 50 mt which is met through imports. By the end of the current Plan period, the country is likely to ramp up production to 629 mt, which will still fall short of the demand by 83 mt. The shortfall is expected to be over 200 mt by 2014, putting additional pressure on imports.

Coal India, which accounts for a bulk of the domestic production has blamed infrastructure bottlenecks like inadequate availability of railway rakes and port facilities for the widening gap in the demand and supply. The company produced 431 mt of coal in the last financial year and sold 10 per cent of this through e-auction at 57 per cent higher than the notified price. Between April 10 and June 10 this year, CIL sold 93 mt of coal at a price 67 per cent higher than the notified price.

The increase in price at the exchange is dissuading buyers, according to experts.

Earlier too, the higher prices realised at the electronic trading of coal had acted as a stumbling block for the scheme. In December 2006, the Supreme Court had dismissed the scheme as a misuse of CIL’s monopoly status to seek the highest price rather than fulfilling its constitutional goals.

This was followed by the government scrapping the floor price for bidding under e-auction in the new coal distribution policy notified in October 2007 and had fixed the notified price as the floor price for sale of domestic coal. E-auctioning had resumed in November the same year.