The coal ministry will reserve coal for auction to unregulated sectors such as cement from Coal India NSE 2.92 %’s additional production every year so that there isn’t any desperate bidding by private firms in the upcoming auction of coal supply contracts.
The government has decided to auction coal from Coal India to unregulated sectors including cement and steel for five years. As per a draft model circulated for stakeholders’ comments by the coal ministry, separate bidding will be held for cement, iron and steel, aluminium and fertiliser plants.
“Different quanta of coal may be earmarked for particular user industries and which would be continuously reviewed at periodical intervals,” the draft circulated for comments said. A senior coal ministry official said the ministry has decided to earmark coal for different sectors from Coal India’s increased output each year.
“The government is aware of the fact that there is huge unmet demand for coal within the unregulated sector. Through this commitment we have assured the steel, cement and other companies in the non-regulated category that coal will be available in future and there is no need for aggressive and nonsustainable bidding for coal supply,” he told ET on the condition of anonymity.
As per the proposed mechanism, Coal India will invite bids from companies for supplying a fixed quantity of coal at a floor price. Once bids are received, the state-run miner will increase the floor price till the demand and supply reach the same level.
The proposed methodology is among three options proposed by SBI Capital Markets that was appointed as the consultant for advising on auctions of Coal India’s contracts. The methodology is being used to derive a market-driven price for the coal contracts against the current system of awarding the agreements based on decisions of an interministerial screening committee.
The policy of auctioning Coal India contracts is expected to be finalised in a month after consultations with stakeholders. The coal ministry will shortly assess the surplus coal in hand after meeting Coal India’s prior commitments.
The ministry is considering extending the coal supply agreements for existing holders by a year to June 30, 2016. After that, existing holders will have to bid for coal contracts.
