The Coal Ministry recently put in place the mechanism of single e-auction for sale of coal instead of the sector-specific window. This is meant to ensure steady supply and a single rate for all consumers, while also making domestic coal more attractive for buyers.
This comes at a time when the government is taking several steps to increase coal production, as there’s a fear that supply from public sector giant Coal India Ltd (CIL) may not be adequate to meet the rising domestic demand and volatility in global prices may impact imports.
The Coal Minister, Pralhad Joshi, had informed Parliament that the government has approved the fading away of the existing Letter of Assurance-Fuel Supply Agreement regime and introduced the Scheme for Harnessing and Allocating Koyala (Coal) Transparently in India (SHAKTI) in 2017, which was amended in 2019.
SHAKTI policy is a transparent way of allocating coal to power plants, including the stressed ones.
To address the issue of coal supplies to the power sector, an Inter-Ministerial Sub-Group comprising representatives from the Power, Coal and Railway Ministries, the Central Electricity Authority (CEA), CIL and Singareni Collieries Company Ltd (SCCL) meet regularly to take various operational decisions to enhance supply of coal to thermal power plants as well as for meeting any contingency situation.
In addition, an Inter-Ministerial Committee has been constituted to monitor augmentation of coal supply and power generation capacity. Secretary, Ministry of New and Renewable Energy, and Chairperson, CEA, are co-opted into the committee as Special Invitees as and when required.
Coal Ministry data reveal that domestic production has shown impressive growth during the past few years, rising from 730.87 million tonne (mt) in 2019-20 to 778.19 mt in 2021-22 — a growth of 6.47 per cent. The rising trend of coal production has gained pace in fiscal 2022-23. This has helped the country curb coal imports to a large extent in spite of the spike in demand due to the continuous rise in power consumption.
The Coal Ministry has fixed the production target of 1.31 billion tonne for FY25 and 1.5 billion tonne by FY30. The Ministry has been actively engaging with various Central/State government agencies both for starting new coal mines and for boosting production in the currently operational mines.
According to reports, the country aims at partnering private companies to restart mines that have been shut or had their production discontinued by CIL on a revenue sharing model.
Smoother supply?
The e-auction will hinge on CIL and SCCL meeting the coal linkage requirements against existing linkages so that supplies to power and non-power sectors at the existing contracted prices are not disrupted, according to a Coal Ministry statement. Besides, clubbing of the e-auction windows would not involve any additional cost to the coal companies. Selling coal through a single e-auction window would enable companies to sell coal at market discovered price and also supply to gasification projects.
The e-auction move is no doubt a much needed one. But to truly boost the domestic supply, the larger challenges of logistics and financing of mining projects must be addressed.
The e-auction mechanism also raises another issue: for optimal discovery of price, the market needs multiple buyers and suppliers which is not possible in this case as there is only a single seller, and the supply can be fully controlled by the seller. And in the current shortage situation, it will only drive up coal prices further.
Says Deepak Kannan, Head of Global Coal Pricing, S&P Global Commodity Insights, “As per our understanding, 90 per cent of CIL’s production is going to state owned power utilities under long term agreements, thus there is not much price fluctuation. And the rest is auctioned through auction platform.”
For long-term agreements, there is no linkage to international prices, however in the auction, maybe international trend will dictate how prices will move, says Kannan. However, when commercial mining operations come into the picture, then probably the scenario might change and there might be a need for proper assessment or index which can reflect the current market prices suiting the demand-supply fundamentals, he points out.
The single window e-auction will definitely ensure that the supply side is not affected, says Kannan. “It also cuts across bureaucratic hurdles,” he adds.
But the challenge of logistics still remains. In the “past few years logistics have improved and coal evacuation has become smoother but still not optimum enough. Like the South still finds it tough to source coal from the North,” he said, adding that quality is another challenge which the domestic coal faces.
Though there is a push for renewables, coal still fuels 65-70 per cent of India’s power production.
According to power sector stakeholders, Power Purchase Agreement holders and other power generators have no problem as long as the guidelines laid down by Union Cabinet while approving the unified auction scheme are adhered to fully.
There are advantages in single window mode agnostic auction. It provides a level-playing field for all sectors of the economy;uniformity of bid price irrespective of sector and mode of supply. Customers also have the option to choose mode of transport.
The auction price discovered is primarily grade-wise rather than source-mode wise, removing the possibilities of curtailment, said a participant in the auction.
While these are happening for easing the stress on the sector, logistics and financing are a big issue for the sector. Today, one hears many banks are walking away from financing coal projects because of green commitments. So, to promote the sector, not only logistics have to be worked out but also a mechanism to encourage financing in the sector.