Coal auction to come with safeguards

NEW Delhi: The government on Wednesday cleared a policy to auction coal linkages - broadly, supply quotas from Coal India Ltd's mines - for non-power industries in future, with robust safeguards against market manipulation or price getting skewed due to the cyclical nature of steel, cement and aluminium business.

The policy would, however, not apply to urea plants for their present or future consumption. Public sector steel, cement or aluminium units too would not have to bid for quantities already allotted. But they too would have to acquire linkages for additional coal requirement through bidding.

"The auction process will bring transparency and an equal opportunity for all consumers," coal and power minister Piyush Goyal said after the Cabinet cleared the policy. The linkages were so far being allotted by an inter-ministerial screening panel, often leaving doubts about transparency.

Analysts see the auction of linkages further priming the coal market for eventual deregulation. The government has already cleared a policy allowing states to commercially mine and sell coal to industries.

Coal secretary Anil Swarup told TOI the linkages would be auctioned through the forward bidding process and follow "ascending market clearing system" methodology used for auctioning telecom spectrum.

This was one of the two methodologies - the other being "bucket filling method" - that an inter-ministerial panel had early last year asked SBI Caps to look at while drafting a blueprint for linkage auction, first reported by TOI on May 22, 2015.

The market clearing methodology is expected to keep the demand-supply position flat during demand fluctuations seen from cyclical industries such as iron, steel and cement. Such a dynamic method would ensure a level field even when different user groups go through different stages of business cycle, which may prompt varying interests among categories to bid.

The emphasis on pricing safeguards comes in the backdrop of the ministry rejecting winning bids of two mines auctioned for the power sector last year on suspicions of price rigging through cartelisation. The matter is pending in the Delhi high court.

Swarup reckoned linkages for some 24 million tonnes would go under the hammer in the first year, with the first round getting completed in 2-3 months. A quarter of the incremental increase in production of Coal India and Singareni Collieries Company Ltd would be added to the quantities for auction to non-power companies. The two companies would conduct the auctions.