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POV : Should e-auction of coal be stopped till Coal India can meet the requirement of the power sector?

By , ,
Industry : Coal

The power ministry is unhappy with the CIL not meeting the fuel requirement of the power sector and has requested the government to put a temporary stop to the e-auction of coal by the state-run coal producer. CIL, on the other hand, says that power sector is only one of their customers and the right to allocate coal is their decision. Taking a balanced view, the Planning Commission says that e-auction of coal has become an important platform but suggests that the quantum can be brought down.

InfralineEnergy spoke to the concerned parties to get their respective views on the subject.

NA,General Manager,NTPC

The insistence of Coal India Limited (CIL) to trade 10 percent of their production through e-auction when the power plants are falling short of fuel is not justified. We have already communicated our anticipation and expectations for fuel to the Planning Commission and they have taken a note of it.

For the current year, we have already managed our unmet requirement through imports, but the unavailability of domestic coal for a long time is definitely going to affect our expansion projects. There are other problems as well, which the power developers face like land acquisition, R&R policy - the government should work on mitigating or resolving these issues. There are delays in getting environmental clearances, the lenders are not coming forward to fund the power projects - all of these issues are affecting the future expansion plans of the power developers.

NA,CGM,Coal India Limited

CIL has been trading 10 percent of its production through e-auction for the past five years and the initiative has received wide acceptance in the market. The power ministry's view on this matter is not a fair view and lacks a balanced approach. If the Ministry had their way, they would use all the coal for the power sector only, but we as suppliers, have to take care of a host of other industries, which have their own requirements for coal and we cannot ignore any of them. There are many issues, which have cropped up in the way of producing coal like environmental clearances and land acquisition, etc.

At present, the country is facing an acute shortage of coal and we have informed all the sectors about the amount of coal that CIL has. However, the Ministry of Power feels that their requirement should be met first. The 90 percent of the power sector's supplies are met through FSAs (Fuel Supply Agreements), the rest 10 percent they can acquire through the e-auction or the imports route. Though it would increase their cost of power, but consumers would ultimately pay that.

Practically speaking, how we divide the supply of our coal, is not power ministry's business. They can provide us with their requirement and if CIL has availability, we will provide; otherwise, we will tell them upfront that we can't meet the total requirement. The power sector pays at a notified price, which is much lesser than what the other sectors pay. If there is a shortage of the coal in the country, then that shortage should be shared by all the sectors.

Moreover, when the policy for e-auction was formulated, it was decided that it should be 10 percent of the entire production of the CIL and gradually it should be increased to 20 percent. However, considering the shortage situation, we ourselves have not increased this quantum and thus are doing the best that we can.

Shri B K Chaturvedi,Member,Planning Commission

The issue of e-auction of coal first came up when I was Cabinet Secretary and back then I had strongly supported it. I still feel that e-auction has been a very good method of ascertaining the market price of coal. Earlier, the market price was determined either through administrative measures in the domestic market, which was a very difficult method and the other way was to take a look at the international market to arrive at the price of coal. However, Coal India was losing a lot in the domestic market. So it was decided to have a certain percentage of coal transacted through e-auction. The percentage was limited at 10 percent and it was decided that it would be increased to 20 percent in future. However, this was decided in an environment in which coal production was expected to go up in a certain manner and Coal ministry and Coal India, including other undertakings of Ministry of Coal, were expected to meet the demand.

The current scenario is a lot different than what was perceived then. Today, they are unable to meet the demand of coal even for key sectors like power and to some extent, steel. It is, therefore, important that while we retain this policy, we fix up a limit taking into account the current requirement of the power sector. There is no use in saying that 10 percent of the coal output would be transacted via e-auction when CIL cannot meet the basic demand of the power sector, which is regulated.

The other sectors which are not regulated can easily fix up their prices but the regulator fixes up the price for the power sector and the cost of power is very high. It affects a large body of people. Thus, the basic question should be: Are we meeting the demand for power? The coal ministry, instead of saying that they will do 10-12 percent of e-auctioning should make marginal adjustments to first meet the demand of the power sector. However, it should not be entirely stopped as it has been an excellent method.

As far as its impact on Coal India is concerned, the Planning Commission has always favoured that the prices of coal should gradually move upwards to be at par with the international market. Keeping with the thought, the prices have already moved up to the international market prices in the A and B category, but there has not been much improvement in the F and G category, the category to which the power sector belongs. However, it does not mean that Coal India is losing because of that as the prices are revised gradually. I feel that instead of stressing on trying to earn in this manner, they should put in their maximum efforts in providing larger amount of volumes and improving their services, instead of focussing on these issues.

(Infraline introduces "Points of View" as an initiative for encouraging dialogue between various stakeholders of the Indian energy sector on contemporary subjects. If you wish to participate in such initiative, please write to feedback@infraline.com)

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