New Delhi: The Coal Ministry is in the process of proposing changes in the method of coal auctions to ensure stable and long-term supply of the fossil fuel to small businesses across sectors.
He will soon circulate a draft note to the Cabinet outlining changes to the policy for auctioning of linkages (industry terminology for supply contracts) that will benefit small businesses in sectors such as steel, cement, fertilisers and captive power producers.
It will also advocate setting up a separate window of e-auction for long-term coal linkages, without 'end-use restrictions' that determine what the coal is being used for.
These e-auctions are conducted by government companies including Coal India Ltd. Spot and short-term purchases are allowed in e-auctions.
A radical change in policy
This will be a radical shift in policy, as so far only power companies and companies from the non-regulated sectors, mostly large steel and cement manufacturers, have been allowed to participate in long-term coal supply auctions with restrictions on the use of coal. The policy under work focuses primarily on micro, small and medium enterprises (MSMEs) from the non-power sectors, which also fall under the category of non-regulated sector or NRS.
Their exclusion means that MSMEs have to rely on spot e-auctions, forcing them to turn to imported coal to get long-term certainty of supply.
This will help in ensuring long term supply of coal not only to MSMEs but also to coal washeries and traders.
The idea is to provide long-term supplies to these blocks through a separate auction window for state-run coal companies, two people aware of the development said.
“The only option for medium and small consumers is e-auction. And in that e-auction, the volumes are low and availability is uncertain. So, e-auction does not assure the continued availability of high volumes of coal for these small consumers,” said one of the two people cited above.
“These small businesses and traders then turn to imports to ensure availability of coal, increasing the country's import dependence. To avoid this, we are going to open a separate window for long-term linkages without end-use restrictions. This will require Cabinet approval, for which a draft note is being prepared and will be circulated soon.”
Another source said the possible change in the auction mechanism for coal linkages is being made as the market dynamics in the country have changed in the last few years due to increased coal availability and the government's focus on reducing imports.
on the anvil for a long time
“The ministry is considering revising the NRS Policy 2016 to include a separate window for NRS linkage auction without any specific end-use and consultations were held with stakeholders on this last week,” the second person said, adding that the move would expand the market for domestic coal.
Recently, the Hindu BusinessLine newspaper reported that the ministry plans to offer long-term coal linkages without end-use restrictions to non-regulated sector consumers.
Last fiscal, coal mining companies dispatched around 163 million tonnes of coal to the non-regulated sector, an increase of around 22% compared to FY23.
The scheme comes at a time when investors are waning interest in fossil fuels and the global energy investment landscape is rapidly changing with focus now shifting to environmental, social and governance (ESG) investing.
Despite energy transition ambitions, India is increasing its coal output to meet rising demand from the power and steel sectors. Power demand in particular is hitting record levels amid an exceptionally hot summer.
This increase in domestic coal production has also prompted the government to focus on widening the market, including promoting cleaner uses of coal through gasification and conversion into chemicals.
Coal India produced 773.6 million tonnes of coal in FY24, up 10% from 703.2 million tonnes in the previous fiscal. India's total mineral production stood at 997.4 million tonnes, a record level.
For this financial year (FY25), the government has set a target of 1.08 billion tonnes.
Questions sent to the Coal Ministry remained unanswered till the time of writing the news.
