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Coal linkages to cement, steel sectors only through auction

In a bid to ensure coal supplies and a level playing field to non-regulated sectors such as steel and cement, the government on Wednesday said coal linkages will be provided to them only through auctions, which will kick off later this month. Government is planning to auction coal linkages of around 24 million tonnes in the first year.

“The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Narendra Modi, has given its approval that all allocations of linkages/Letter of Assurance (LoAs) for non-regulated sector viz. Cement, Steel/Sponge Iron, Aluminium, and Others [excluding fertilizer (urea) sector], including their CPPs, shall henceforth be auction based,” an official statement said.

Stating that the process of giving coal linkages was not fully transparent, Coal and Power Minister Piyush Goyal said that there were many compliants about the whole process. 

“The auction process would bring transparency and an equal opportunity for all consumers,” he said.

Goyal was addressing media after the Cabinet meeting. Coal Secretary Anil Swarup said “the exercise (for auction) will start in 7-10 days... It should take 2-3 months as happens in an auction to finalise that. 

“Let us put it about April-end, we should be able to put it in operation.”

State-controlled Coal India Ltd and Singareni Collieries Company Ltd (SCCL) will put up a quarter of its production for auction to non-power companies.

“25 per cent of incremental Coal India Ltd (CIL)/ Singareni Collieries Company Limited (SCCL) production during 2015-16 over 2014-15 will be put up for auction,” an official statement said. 

Companies that had long-term fuel supply agreements with CIL will however continue to get supplies until their term expires, Goyal said. 

“The framework attempts to make the coal available in a fair manner to the end-users. The proposed auction methodology leads to the price through a market mechanism; it does not seek to maximise revenue,” the official statement said.

“It ensures that all market participants of non-regulated sector have a fair chance to secure coal linkage, irrespective of their size,” it said.

There may not be premature termination of fuel supply agreements (FSAs) of non-regulated sector as of now, it said.

“There will be no renewal of existing FSAs of non-regulated sectors [except FSAs of CPSEs and Fertiliser (Urea)] which are maturing in 2015-16 onwards, after completion of their current agreement tenure,” it said.

“The existing FSAs with Central Public Sector Enterprises (CPSEs) may continue to be renewed on expiry; for additional linkages, CPSEs may participate in auction,” it said.

“To start with, in the first tranche, the quantities corresponding to FSAs of non-regulated sector (except CPSEs and Fertilizer (Urea)--maturing in 2015-16 onwards and 25 per cent of incremental Coal India Limited (CIL) / Singareni Collieries Company Limited (SCCL) production during 2015-16 over 2014-15 will be put up for auction,” it said.

For auction of linkages, separate quantities shall be earmarked for sub-sectors of non-Regulated sector.

The sub-sectors could be cement, sponge iron/steel, aluminium, and others [excluding fertilizer (urea) sector], including their captive power Plants etc.

“Auctions shall be conducted by CIL/SCCL,” it said. Policy directions will be issued by the Ministry of Coal and will be implemented by CIL/SCCL. 

The auction of coal linkages is transparent, and creates a level playing field, the statement said. 

It ensures that all market participants have a fair chance to secure the coal linkage, irrespective of their size and attempts to ensure an optimal allocation of coal across user industries and geographies, it added.
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