In what could be regarded as good news for thermal coal consumers in India, domestic availability has not only increased due to increment in production but also because the Government of India (GoI) has put in place an efficient supply mechanism that will ensure continuous supply, simultaneously enabling hassle-free procurement. This apparently is bad news for overseas suppliers, especially in Indonesia and South Africa, as such mechanism would mean imports to India will decline this fiscal.
The GoI has put in place the forward e-auction mode of coal supply for both power as well as non-power consumers in the country, beginning the current fiscal, scrapping the erstwhile mode involving Fuel Supply Agreements (FSA) with suppliers. In this regard, the government has mandated the sectors to purchase coal exclusively through forward e- auctions, to be conducted periodically throughout the fiscal, terminating all FSAs with consumers on 31 Mar’16. However, existing FSAs were extended upto 30 June’16 in order to facilitate sufficient time to consumers for transitioning smoothly to the e- auction mode.
The government has continuously put in efforts to increase domestic supply and lower imports. As a result, coal production in India has increased remarkably during the recent fiscals.
In fact, high production in FY16 generated surplus stocks for Coal India Limited (CIL), the largest miner in the country. As a result, the government owned maharatna stepped into the current fiscal with a stock of around 57.67 mnt; CIL has set production target to 598.60 mnt for FY17.
CIL has allotted a huge quantity of 120 mnt of coal to be sold through forward e-auctions during the current financial year. The first phase of the e-auctions in FY17 was conducted on the 27th and 28th of April. It was exclusively for power producers in the country. The auction elicited a forthcoming response from the participants, who took away the entire 40 mnt of coal allocated for the auction.
The first auction of coal linkage for the sponge iron consumers was, however, postponed to 10th June’16 from 31st May’16 on the basis of the response received during the pre-bid meeting on 29th May’16. CIL has allotted 6 mnt of coal for this phase of auction.
The change-over from the FSA mode to the e-auction mode is intended, among other concerns, to provide continuous coal supply to power producers in the country, aimed at improving power supply in the nation. E-auctions are being considered a more suitable mode of coal procurement rather than FSAs; therein consumers from each sector will be able to participate and easily purchase material as per requirement.
The series of the forward e-auctions to be conducted during this fiscal are expected to draw in massive participation of consumers as several consumers, especially power plants, are deprived of domestic coal supply due to constraints posed by the FSA mandate. There are power plants with approximately 57,000 MW of cumulative capacity in the country without any FSA with CIL. These are certain to participate in the forward e-auctions to avail domestic coal supplies without any hassle. Imports into the country have been declining in the recent fiscals as consequences of increasing domestic production. Thermal coal imports into India in FY16 were lower, at 167.8 mnt, compared to 183.7 mnt, in FY15. Needless to say, imports into the country will further go down this fiscal due to the twin effects of abundance in domestic supply and the government streamlining the supply process through e-auctions.
Source: Steel 360 Magazine June’16 Issue