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Cabinet gives nod to coal offering through common e-auction window

The usage of a common e-auction window will replace the system of holding sector-specific auctions, thereby "removing market distortions" and providing a "single rate for all the consumers".

February 26, 2022 / 03:36 PM IST
Representative image (Source: Reuters)

Representative image (Source: Reuters)

The Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Narendra Modi, on February 26 gave its nod to the offering of coal by coal companies through a common e-auction window.

The usage of a common e-auction window will replace the system of holding sector-specific auctions, thereby "removing market distortions" and providing a "single rate for all the consumers", the CCEA said in a statement.

The Cabinet has approved the "offering of all the non-linkage coal by coal companies through one e-auction window of CIL (CIL)/Singareni Collieries Company Limited (SCCL)," it said.

"This e-auction will cater to all the Sectors namely Power Sector and Non-Regulated Sector (NRS) including traders and coal would be offered through this auction in place of the present system of sector-specific auctions," the CCEA added.

The e-auctions, however, will be subject to CIL/SCCL meeting the coal linkage requirements against existing linkages and do not impact the current linkages to power and non-power consumers at contracted prices.

Coal offered through the single e-auction window shall be transport mode agnostic with the default option being through rail mode.

"Long term allotment of coal by CIL/SCCL, without affecting the supplies against existing coal linkages, to their own gasification plants shall be allowed at prices as may be decided by the coal company. However, the taxes, duties, royalty etc shall be paid by the coal companies on the notified prices of coal for power sector," the statement noted.

According to the government, the Cabinet's decision to allow a single e-auction window for coal offering will have a "major impact", including the "potential for employment generation".

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"It shall increase operational efficiencies and lead to an increase in domestic coal demand by efficiency in domestic coal market. Besides the discretion presently vested in coal companies of allocating coal to different end use sectors will be eliminated. Further the coal companies shall be able to establish coal gasification plants by availing coal from their own mines. It shall help in developing clean coal technology in the country," it said.

Removal of market distortions through offer of coal under a single e-auction window at the same rate for all the consumers of the economy will attract more consumers towards domestic coal, the CCEA said, adding that this will likely lead to a surge in demand for domestic coal.

"CIL also has ambitious coal productions plans for the future with an aim of producing 1 BT (Billion Tonne) coal by 2023-24. Hence, with better availability of domestic coal with better price stability and predictability, the import of coal is expected to come down drastically. This would reduce the dependence on imported coal and would help to make Atmanirbhar Bharat," it further said.

The government also noted that offering coal through a common e-auction window would have no additional financial implications. "Clubbing of the e-auction windows would not involve any additional cost to the coal companies," it added.

Notably, the coal market is segmented along with being regulated, and consequently, there are many different market-discovered rates for the same grade of coal in each segment of the market.

Segmentation with rate differentiation results in coal market distortions. With these reforms in the coal market, coal of any particular grade may be sold in the market at one rate (one grade, one rate), with the default mode of transport being Railways, through a transparent and objective e-auction mechanism.

A single e-auction window would enable the coal companies to sell coal through the market-discovered price mechanism to all the consumers.

Besides the above, the need of the hour is to move away from the conventional coal use to clean coal technologies. The coal companies are planning to diversify business via the coal gasification route. In the coal block allocation mechanism, coal gasification is being encouraged through incentives like rebate in the revenue share.

"Similar incentivisation is necessary to help early establishment of this new use of coal and related technologies. The coal companies would have the flexibility to supply coal to their coal gasification projects," the CCEA said.

Moneycontrol News
first published: Feb 26, 2022 03:36 pm