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Coal linkage auction: Spectrum-like auctioning likely for unregulated sector

SBI Caps, in a report, which would be the basis for a policy paper on mechanism for granting coal linkages to the unregulated sector, has recommended a telecom spectrum-like auctioning of linkages for a tenure of 10 years, unlike fuel supply agreements that have a five-year term.

Linkages are assured supply commitments from Coal India Limited (CIL) to a company that has an end-use plant. The government is now gearing up to auction coal linkages to the unregulated sector.

The report is expected to come up with a policy paper on the mechanism by June 30. The auctioning method was decided during an Inter-Ministerial Committee (IMC) meeting earlier.

"The members of the IMC were of the view that the Bucket Filling Approach and Ascending Market Clearing Approach (followed in telecom spectrum auction) were better suited for this purpose," the minutes of the IMC meeting dated April 27, 2015, said. Under this method, simultaneous auction of different lots takes over multiple rounds of bidding to select the highest bidder for that lot.

SBI Caps was asked to work out the details of auctioning. According to officials, the tenure of the auction, which was debated during IMC meetings, has been fixed at 10 years in the report.

"There was also a proposal to keep it at five years, which is the tenure of FSAs. However, since it would be auctioned, the overwhelming view was in favour of a longer tenure. Another argument in favour of the longer tenure is that the linkage period should be close to the tenure of the loan period," said a source.

The categorisation of the unregulated sector is likely to be in three categories as suggested by the IMC earlier. Cement and aluminium sectors are likely to be clubbed in one category, iron and steel, including sponge iron, would be the second category and the rest of the unregulated sectors, such as fertilisers and paper whose requirements are small, may be clubbed in the third.

Traders and washeries, however, will be barred from participating in the proposed auction of coal linkages.

GRANTING COAL LINKAGE TO THE UNREGULATED SECTOR

    Simultaneous auction of different lots over multiple rounds of bidding to select the highest bidder for that lot.
    
    Tenure of linkages likely to be for 10 years
    
    Unregulated sector may be divided into three categories: cement and aluminium, iron and steel (including sponge iron, and other small users.

source:http://www.business-standard.com