In a major reform push for the coal sector, the government aims to overhaul the decades-old production and supply structure with greater access to commercial mines through a national coal exchange that will eventually offer the dry fuel on an on-demand basis to consuming industries, particularly MSMEs.

Commercial coal mining is small at present, but with the Coal Ministry’s focus on higher supplies to Non-related sector (NRS) industries, curbing imports and coal gasification, the sector is expected to expand significantly by 2030.

Currently, of the 107 commercial coal mines auctioned since June 2020, 11 blocks are in operations. These mines have produced around 15 million tonnes (mt) in FY24, and have a target of 23 mt in FY25.

A top government official said, “The objective is to create a robust ecosystem that nurtures a transparent and competitive market. To this effect, commercial auctions have begun. Next is a marketplace, which will be a national coal exchange. We will also have a regulator for the exchange.

“Currently, NRS industries, particularly during summers, face supply issues and have to procure coal at higher prices through spot and e-auctions. Indian economy is expanding and will require more coal going ahead. We have to be competitive at the same time to become a global manufacturing hub. Commercial market takes care of these issues.”

The aim is to create an “on-demand service” in the sector where consumers go to the exchange portal and place their orders for the quantity required, at any time and receive the quantity at their doorstep at competitive prices. This will be part of the Ministry’s Viksit Bharat 2047 Action Plan, the official explained.

Commercial coal

The rationale behind setting up a commercial mechanism is that it facilitates many sellers and buyers to come together to trade coal as a commodity, said a senior government official.

The proposed national exchange is aimed at moving forward in commercial coal mining and facilitates expansion as well as development of domestic coal markets. Exchange will also enable efficient market-based pricing mechanisms and facilitate price discovery, he added.

The Ministry with the assistance of sector experts is also evaluating aspects around having innovative coal marketing policies. “Ministry is analysing a host of suggestions regarding operations and products that the exchange can offer. For instance, can it earmark 25 per cent of the quantity produced by PSU commercial blocks for the MSME sector?,” the official said.

The Ministry is also planning to create a regulator for the sector considering a coal exchange mandates the creation of a regulator. The Ministry is holding discussions on the same. “It is expected that the Ministry will by September-October move a proposal for the coal exchange and the regulator for the consideration of the Cabinet,” the same official said.

CIL’s dominance

National coal exchange will be a game changer. Currently, there is no market mechanism for price discovery of coal. A mature market will check dominance of one player, which is CIL, a top official from a primary steel producer said.

“Coal companies will offer innovative schemes at competitive prices to consumers on the exchange. This will impact quantities that are auctioned in spot and e-auctions, where buyers many a time complain of low quantities and high prices. For instance, some e-auction premiums went up by 400 per cent in summer of 2023. We are forced to buy at such high prices as priority is for the power sector. This makes us less competitive to other players, particularly China. A robust private sector also checks this,” he added.

A senior government official said, “From a market aspect, sure, CIL will see competition. There is no doubt that spot and e-auctions will be impacted. It is also for CIL to now review its go-to-market strategy and structure it on market dynamics.”

However, this is not about checking anyone. It is about creating a dynamics commercial market where companies not just sell coal, but also by-products from coal gasification, among others, he added.

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