Coal news and updates

Independent entity should conduct linkage auction

April 14: The third meeting of the Inter-Ministerial Committee (IMC) for the proposed auction of coal linkages or letters of assurance (LoAs) through competitive bidding has been informed by stakeholders that an independent entity should be appopinted to conduct the auction even as the committee has decided that all allocation of coal linkages will take place only through auction.

SBI Capital, which has been appointed by the Ministry of Coal to suggest a methodology for the auction of linkages, informed the members that during its interaction with the Ministry of Steel and Cement Manufacturers’ Association (CMA), it was suggested that the proposed auctions should be conducted by an independent entity and auction terms and conditions be decided clearly.

The stakeholders also suggested that bidders should be given an exit option in the FSAs after a certain lock-in period as coal prices in international markets fluctuate. There should be an escalation factor to allow for a decrease in coal prices as rates in international markets move in both directions.

It was decided at the meeting that CIL shall first meet its obligation of supplying up to 80% of the annual contracted quantity (ACQ) to the power sector under the existing linkages and any future allotment of linkages shall be taken up only under the new system of allocation.

It was also decided that based on the existing FSA data, pending LoAs, existing production of CIL and expansion plans of CIL, SBI Capital shall undertake a supply study, along with CIL, to ascertain the quantity of coal which shall be available for auction.

The meeting also decided that a draft methodology for auction of coal linkages for the power sector be prepared immediately for further consultations.

As far as the non-regular sectors are concerned, the meeting discussed that end-uses may be separate, based on project economics such as cement, iron and steel, captive power plants etc.

It was decided that since the requirement of other sectors such as fertilizers, paper etc is small, coal linkages may be allocated separately to these sectors.

SBI Capital was asked to undertake a study of the existing FSAs in consultation with legal experts in conducting auctions for such FSA holders.

Earlier, SBI Capital had informed that during its meetings with various stakeholders, concerns were raised regarding difference in the quality of coal mentioned in the FSA and the quality actually delivered.

The stakeholders had stated that with the adoption of a market-based mechanism for pricing of coal, quality of the fuel supplied must be ensured by CIL.

Members of industry bodies pointed out that currently there are capacity constraints for movement of coal by rail and with the adoption of a market-based mechanism, logistics issues must be resolved to ensure regular supply of coal to end-users.