The coal ministry is set to ask the power distribution companies to arrange for all the requisite clearances before the ministry starts inviting competitive bids from them for the auction of coal mined by state-run collieries on a “plug and play” basis.
The government has decided to auction the fuel produced by Coal India Limited (CIL), which the PSU offers to its buyers in the form of linkages. Linkages are fuel supply pacts signed by CIL with its customers in which they are assured the supply of certain quantity of coal for meeting their production needs. The ministry had drafted a paper last week on auction methodology in which it proposed that either a single electricity distribution company (discom) or a group of discoms should invite tariff-based competitive bids and they would be empowered to transfer linkages to successful bidders.
To make utilisation of the auctioned coal linkages easy for a successful bidder, the ministry has reasoned that discoms should carry out a background check of the linkages to be auctioned to ensure that they are free of disputes. “In order to avoid disputes and stranding of projects, it may be prudent that the discoms arrange all the clearances beforehand and invite the bid on a ‘plug and play’ basis,” according to a paper on auction methodology prepared by the coal ministry.
In the proposed auction methodology, a bidder would be required to quote separate figures for variable charges (escalable and non-escalable) and fixed charges at the delivery points mentioned by the discoms. Taking an average of both the charges, a levelised tariff would be fixed to select bidders and the lowest bidder would be declared as the preferred bidder. Interestingly, the bidder-wise list would be different for each discom to avoid aggressive bidding.
“Power tariff would be the sole criteria for awarding a linkage through a transparent auction process. Any escalation of cost of fuel, rail tariffs or any other cost should be allowed as a pass-though,” a top coal ministry official told this newspaper. “Periodic review of utilisation of linkages already granted shall be conducted and fresh linkages may be issued to the discoms based on the same,” according to the paper.
The specific quantity of coal allocated to various discoms for auction would depend on the demand-supply situation of a state, availability of transportation and proper transmission network among other things.
The auctioned linkages would be valid from seven years to up to 25 years to help in uninterrupted mine output and building rail infrastructure. CIL should be asked to earmark a coalfield or a mine and the railway would ensure coal evacuation infrastructure to have more certainty in the bids and lower tariffs.