Competitive bidding has gained momentum in India and has indeed created a transparent mechanism for allotment of natural & public resources. The inventive inquisitiveness of the government has paid off. After the success of Coal Block, Minerals and Spectrum, now the government has decided to auction Coal Linkages.
An Inter-Ministerial Committee (IMC) was constituted by Ministry of Coal (MoC) to examine the feasibility of allocation of coal linkages/LOAs through a transparent mechanism. MoC vide its policy dated 15th February 2016 provided the pathway to auction linkages of coal for the non-regulated sector, where sub- sectors could be cement, sponge iron/steel, aluminium and others [excluding fertilizer (urea) sector] including their captive power plant. The auction is to be conducted by Coal India Limited/Singareni Collieries Company Limited. The proportionate quantity will be 75% for power & 25% for non-power based on last 5 years consumption. A total quantity of 23.25 mnt coal will be put up for tranche-I and the bidding will take place on the e-platform of MSTC Limited.
CIL conducted several interaction sessions with consumers in various cities before declaring the official policy paper for sponge iron sector on 26 May’16. Key aspects of the linkage auction are pointed out below:
1. The existing coal supply arrangements may continue till commencement of coal supply under the auction process
2. Tenure will be up to 15 years
3. Separate quantity shall be ear- marked for each sub-sector and industries will compete among their sub-sector peers
4. The sub-sectors may be reviewed by MoC as and when required
5. Provision of 3rdparty sampling shall be provided
6. CIL will chalk out a 6-month auction calendar
7. The auction will be conducted on initial reserve price and shall be non- discriminatory ascending clock auction
8. The premium shall be increased as per demand/supply ratio and shall vary from INR 10 to INR 300 for a range of demand/supply ratio as provided in the scheme document of each sector
9. The bidding process will continue till the demand-supply equilibrium is established
10. Maximum bid quantity by a particular bidder shall not exceed the normative requirement of the end use plant
In the first round of linkage auction conducted for sponge iron sector, about 3.7 mnt of coal was allotted. The final figure is not known, but as per media reports after day-3, out of 2.92 mnt offered, about 1.64 mnt was sold, ie 56% of the gross offered quantity.
Whatever be the success percentage, I think CIL has definitely got a good learning curve. Since linkage auction is a long term fuel security plan for any industry, it needs to be grounded with a strong future linked policy. Any deviation may operationally and economically hamper the industry.
In the present auction, certain policy regulations like usage of fines/middling/rejects, which amount to a considerable portion after washing and crushing of coal, are not covered. In sponge iron units, fixed carbon (FC) content in coal is a vital criterion. In the subsequent rounds for sponge iron, CIL should provide coal more from those mines which have better quality of coal with higher FC.
Similarly for the next round of auctions proposed for cement, captive power plants etc, CIL should improve and change the scheme document incorporating the learning from the first round conducted for sponge iron.
Overall, auction of linkage is definitely a good initiative to help industries of different sector in getting long term fuel security through a transparent mechanism.
*The views expressed are author’s own and do not necessarily represent the view of the company
Source: Steel 360 July’16 Issue