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Thursday, February 25, 2021

Coal supply: Panel against scrapping fuel pacts

An inter-ministerial committee has said that unregulated-sector PSUs need perpetual access to fuel.

Written by Priyadarshi Siddhanta | New Delhi |
Updated: December 25, 2015 11:37:48 pm

State-run companies in steel, cement and fertiliser sectors may not have to bid for Coal India’s linkages as an inter-ministerial panel of the coal ministry has recommended against termination of their fuel supply pacts with the coal miner “in the larger public interest”.

An inter-ministerial committee (IMC), which has been constituted by the government to suggest a roadmap for auctioning Coal India Limited’s (CIL) linkages has in its recent meeting argued that the state-run companies in the unregulated sectors comprising steel, cement, sponge iron, fertiliser and captive power need perpetual access to fuel to meet their production needs. “It was also recommended that the fuel supply agreements (FSAs) of PSUs of non-regulated sector would continue to remain in force as it is in the larger public interest,” the IMC observed in its meeting on September 24.

The fertiliser ministry officials in particular opposed auctioning of linkages in the meeting. They contended that the input cost, including coal used during urea production is a pass through item under the New Urea Policy-2015. “Therefore, any increase in coal price through competitive bidding will increase the subsidy burden of the government. Hence, the existing system of supply of coal through coal linkage to urea units may continue, which the IMC supported,” according to a senior coal ministry official.


The panel is also learnt to have advised against any foreclosure of FSAs following representations by various stakeholders and industry associations. However, the IMC has also said that following expiry of such agreements in 2015-16, they need not be renewed and the coal earmarked for this should be auctioned. “Besides, 25 per cent of incremental production of CIL during 2015-16 over 2014-15 and subsequent years may also be auctioned as linkages,” the IMC suggested.

There may not be sectoral reservations in the first tranche of auctions of linkages as there is no significant empirical evidence justifying the same, the official pointed out. To justify his contention, he cited that in the recent coal block auctions the allocation to end use sectors was not skewed despite any sectoral allocations.

As per the blueprint prepared by the IMC, the tenure of linkages to be auctioned should be valid for five years. CIL will earmark coal from a mine within a subsidiary, as deemed fit. The methodology for auction of linkages shall be non-discriminatory Ascending Clock Auction where the auctioneer increments the price (premium) on the electronic platform till demand-supply equilibrium is established.

“Each successful bidder pays the same price. The initial floor price shall be set at the relevant CIL rub-of-the-mine price and bidders shall bid for premium above this price for the relevant grade and for a particular ‘link quantity’. …,” according to the blueprint.

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