In a first, CIL to pay penalty for non-supply of e-auctioned coal

Coal Ministry aims to make miners more accountable for timely and cost efficient supply to consuming industries, including non-regulated sectors.

CIL has started online signing of fuel supply agreements (FSAs), which is also being extended to include the SHAKTI B auctions | Photo Credit: AMIT DAVE/REUTERS

In a historic step, the government has mandated that Coal India (CIL) — which accounts for around 80 per cent of India’s production and despatch — will now have to pay a penalty if it fails to supply coal procured by consuming industries through e-auctions.

• Also read: Coal India clears decks, allows supplies beyond limit to thermal power plants

Besides, aiming to enhance the ease of doing business, particularly for non-regulated sector (NRS) industries, CIL has started online signing of fuel supply agreements (FSAs), which is also being extended to include the SHAKTI B auctions.

These developments are part of Tuesday’s announcement by the mining behemoth that power plants, including independent power producers (IPPs), will be supplied coal beyond their annual contracted quantity (ACQ).

In FY24, of the total 972.60 million tonnes (mt) coal production, the despatch to power sector stood at 809.64 mt (up 8.78 per cent y-o-y) and supplies to NRS was at 162.96 mt (up by 22.32 per cent y-o-y). Coal share of the power sector stood at 83.24 per cent and that of NRS was 16.76 per cent.

Ease of doing business

A top government official said, “Consumer is king and we want to impress this upon everyone in the coal sector. CIL used to forfeit security deposits, which was earlier ₹200 a tonne before being raised to₹500. But it has been slashed to ₹150 based on market movements and auction premiums.

“Now with a penalty for CIL for non-supply, the government is making contracts equitable and fair. Earlier there was no penalty on CIL if it failed to supply coal. This will also boost supplies to NRS industries, which have been complaining for long about reduced supplies and priority given to the Power sector.”

Another senior official pointed out that India’s coal production is increasing at a healthy pace and is expected to hit 1,080 mt by March 2025. The Ministry wants to ensure that higher quantities produced are consumed and miners are not left with supplies lying at pit heads, thereby leading to loss of income and wastage of the mined resource.

Online signing of FSAs, said another source, is a game-changer.

“Earlier consumers had to physically go to the coal companies’ office to sign FSAs. Now, CIL has been signing FSAs of NRS consumers from VII Tranche of e-auctions. That apart, it is also being implemented for SHAKTI B (VIII) (a) auctions that are held about seven times annually,” he added.

Focus on NRS

The Ministry has now started focusing on meeting requirements of the NRS customers, which includes captive power plants, steel, cement, sponge iron, etc. — important building blocks in India’s expanding infrastructure and manufacturing base.

The traditional method was that coal was first supplied to the power sector and after meeting their demand, the requirements of the NRS industries were met, an official said.

“But this year, coal is in abundance. So, there are no restrictions or priority to power as there are good stocks at their end, from April till now. Resultantly for NRS industries, the supplies this fiscal so far are around 20 per cent higher y-o-y,” he added.

The Ministry is now planning to offer long-term coal linkages to NRS consumers, without end use restrictions, a move that will not only boost supply of the critical fuel but also aid companies in better planning of the key resource.

Sources said the Ministry is already “contemplating” the proposal. Currently, it is holding stakeholder consultations on this issue. Accordingly, it is planning to amend the NRS linkage auction policy of 2016. Long-term coal linkages without end use restrictions has been a long standing demand by NRS consumers.