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Government mulls new condition for private steel, cement companies to participate in coal auction

Private steel and cement firms will now have to specify their coal requirement and end-use projects to the coal ministry before bidding for supply of fuel from state-run monopoly miner Coal India. The coal ministry has decided to incorporate end-use stipulation for auction of Coal India’s contracts though the condition was not mentioned in the approach paper that was recently circulated among the industry for comments, officials said.

“The bidding will be plant-wise and companies that do not have a ready end-use project will be barred. We are considering restricting the companies from bidding for coal more than 100% of their plants’ requirement to prevent cornering of the fuel by a few,” a senior government official said, requesting not to be named.

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The policy for auction of coal supply from Coal India is expected to be finalised next week, he said. The government has decided to auction coal supply from Coal India to unregulated sectors including cement and steel for five years. As per a draft model circulated for stakeholders’ comments by the coal ministry, separate bidding will be held for cement, iron and steel, aluminium and fertiliser plants.

The official said the existing consumers of Coal India have opposed the government’s proposal to auction the agreements citing price rise while a majority of the non-consumers have welcomed the move. Most companies have demanded separate bidding for the subsectors within the unregulated sectors like steel, cement, fertilisers and captive power plants.

The coal ministry has also committed to reserve coal for auction to the unregulated sectors such as steel and cement out of Coal India’s incremental production every year. This has been done to avoid desperate bidding by private firms in the upcoming round of bidding for coal supply from the miner.

As per the proposed mechanism, Coal India will invite bids from companies for supplying a fixed quantity of coal at a floor price. Once bids are received, the state-run miner will increase the floor price till the demand and supply reach the same level. The proposed methodology is among three options proposed by SBI Capital Markets, which was appointed as the consultant for advising on auctions of Coal India’s contracts.

The methodology is being used to derive a market-driven price for the coal contracts against the present system of awarding the agreements based on decisions of an inter-ministerial screening committee. The coal ministry will shortly assess the surplus coal in hand after meeting Coal India’s prior commitments.


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