Coal news and updates

Coal linkage auction to have price safeguards

The government is looking at two options for auctioning coal linkages - supply assurance from Coal India's mines - to ensure that price does not get skewed by variation in demand from bidding industries due to the cyclical nature of their business.

The emphasis on pricing safeguards comes in the backdrop of the coal ministry rejecting winning bids of two mines auctioned for the power sector recently on suspicions of price rigging through cartelisation. The matter is pending in the Delhi high court, while the government has referred the bids to Competition Commisison.

An inter-ministerial panel, set up in January for drawing a blueprint for auctioning linkage, has asked SBI Caps to look at "bucket filling" or "ascending market clearing system" methodologies, considered most suitable for proposed linkage auction.

Bucket filling refers to the quantity carved in each swing of a crane-based mining gear, called dragline in industry parlance, and number of swings in a particular time-frame. The ascending market clearing system was used for auctioning telecom spectrum.

Both these methods keep the demand-supply position flat during demand fluctuations seen from cyclical industries such as iron, steel and cement. Using the dynamic methods would ensure a level field even when different user groups go through different stages of business cycle, which may prompt varying interests among categories to bid.

But opinion is divided on the tenure of the auctioned linkages. While the initial report by SBI Caps has suggested 10 years, some panel members favoured five years since the present linkages are given for this period.

The panel has also suggested whether incremental increase in production from Coal India's mines could be earmarked for different industries. There is also another suggestion to divide user industries into three categories: cement and aluminum, Iron, steel an sponge iron; and other users such as captive and power projects.

The panel also flagged the issue of coal off-take pattern shifting due to the auction. This would require the railways to rejig development plan accordingly. The current development plans of the railways are in sync with the growth in coal production and supply.

source: http://timesofindia.indiatimes.com