As proposed, the entire coal produced in the country will be traded on the ‘Coal Exchange,’ an online platform where pricing is transparently determined through demand and supply. The trade takes place on the lines of product exchanges, power exchanges or the planned trade of gas. This may mean the end of the existing Fuel Supply Agreements (FSA) system for Coal India, where state-run miners sign contracts to supply coal to consumers. Coal India Ltd is expected to remain a dominant player in the sector due to its output target of one billion tons by 2024 and will sell incremental capacity at market prices, a senior government official said.
Coal consumers and traders welcomed the move, but said the exchange should begin only if there are multiple buyers and sellers. The Ministry of Coal is likely to begin auctioning about 50 coal blocks for commercial coal mining.
The government official said that discussions had begun in the Ministry, and there is no doubt that a coal exchange would be established after the government had addressed all the related concerns.
“We are going ahead with commercial coal mining. So, very soon, we will have more sellers in the market besides Coal India and Singareni Collieries,” the official said. “Coal blocks have also been allotted to state PSUs for sale of coal. On other hand, we will have multiple buyers also. We are thinking of a platform for sale of coal, like we have commodity exchanges where other commodities are being traded. We have started discussing it.”
The official said that the planned coal exchange could be the only trading site for the coordinated selling of coal. “The shape and size of the forum, powers, rules, issues of the current FSAs will all be addressed in due course of time,” he said.
The coal trading platform is a very positive move for the country, said Kapil Mantri, head of Jindal Steel & Power Ltd corporate strategy, adding that much depends on the finer details of such a platform, but this will certainly bring huge efficiencies, particularly in terms of logistics costs.
“Coal exchange is a must when we talk of the real time power market and is a right step in the evolution of the coal market,” said Association of Power Producers director general Ashok Khurana. “However, exchange needs multiple sellers and buyers to prevent gaming. With commercial coal auctions due to start, we may have a situation of multiple buyers in the next 4-5 years. Before that the exchange can start with minimal operations, and substitute for spot auction platforms. Coal offering on exchange, should be only after linkages contracts are met fully—it should not be at their cost. If so, it would drive up the power prices.”
A top executive with a coal trading company said that countries around the world already have coal exchanges, and that is a tested model. Nonetheless, the government will allow the market to grow with a large number of players in order to ensure that the proposed market obtains the right value for coal.
