Ministry of Power recommends stopping of e-auction by Coal India

The Ministry of Power has proposed to Prime Minister Manmohan Singh that Coal India (CIL) should be directed to stop the premium sale of thermal coal through e-auction route and switch the supply to power plans facing fuel shortage in spite of coal linkage. The producer can be allowed to make a comprehensive hike in its notified coal prices so that it is able to make up for the lost revenue. Prime Minister is holding a meeting on May 19, 2011 with all stakeholders to review progress in power and coal mining projects and it is expected that Ministry of Power will discuss this issue with the Prime Minister.

The Ministry of Power’s suggestion is backed by the lobby of private power developers, having the view that it will be difficult to raise coal production immediately to meet current requirements. Hence, CIL should stop spot sales of thermal coal, so that they can get extra coal for their thermal plants. The power ministry feels that Coal India should respect commitment to supply quantities agreed under letters of assurance for new units commissioned during 2009-12 before resorting to e-auction of thermal coal. CIL has been selling a part of its annual coal production through the e-auction route to maximize its revenue. In the financial year 2010-11, the company sold nearly 40 million tonnes of thermal coal with average price realization about 80% higher compared to the notified price.

On this issue, CIL Chairman N. C. Jha said, “Current spot market prices are about 80% higher than the notified price of Rs 800 - 1,200 per ton”. Spot sales account for 9% of Coal India's revenue. There was no shortage of coal for the power sector and that producers were not utilizing the entire quantity earmarked for them. He further added, “Spot sales were started to meet the needs of small consumers and companies that do not have adequate linkages” at present Coal India set aside 11.5% of its production for spot sales every year.

Experts on power sectors see it as one of the possible solutions to make more coal available for power generation that may transmit to channelizing Coal India's production sold under the spot sales process to thermal power plants. Non-diversion would mean loss of production and erosion of investor confidence, besides default on power purchase agreements and term loans.