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Coal India plans auction of 10-year fuel linkages: report

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20 March 2015

Coal consumers outside the power sectors are expected to get 10-year coal linkages if an inter-ministerial committee meeting convened today decides to auction coal linkages, according to media reports.

After the first round of coal block auctions that has so far brought in over Rs2,00,000 crore to the government's coffers, the coal ministry is now looking at raising additional revenue from auctioning of coal linkages.

Coal India Ltd (CIL) has appointed SBI Capital Markets as a consultant for suggesting a methodology for the proposed auction, the report added.

In the first round of auction of 33 coal blocks, the coal ministry allotted licences to companies in sectors such as power and steel.

It is now expected to invite competitive bids for auctioning fuel linkages given by Coal India Ltd to its buyers in these sectors as well, thereby extending the auction mechanism to even fuel supply pacts.

But, with the guiding principle in the power sector being tariff minimisation, the minutes of the meeting held by the inter-ministerial committee on 9 March said.

These fuel pacts, which will replace the Letters of Assurances (LoAs) issued by CIL to the companies through the coal ministry's linkage committee, will assure supply commitments from CIL to a company that has an end-use plant and needs fuel to run its operations.

An inter-ministerial committee (IMC), constituted by the coal ministry two months ago to explore ways to auction linkages, had suggested that the reserve price for auctioning linkages can be based on the notified coal price of CIL. The bidder should be informed beforehand about the grade, quantity and location of the coal being auctioned.

The committee wanted priority to be accorded to either operational or ready-to-be-commissioned coal-fired power generating plants, the reports said, adding that these power plants must have power purchase agreements with distribution companies (discoms) and should not be having any linkage or captive coal blocks.

On non-regulated sectors like steel, aluminium and cement, the committee is divided on whether to fix the bid price of linkages based on prices of the finished goods or indexing it at CIL-notified price. However, the panel is unanimous that auctioned linkages for the non-regulated sectors should be valid for 10 years.

SBI Caps would examine whether a fixed percentage may be applied to cap the price of coal for the bidder, instead of linking the escalation to some index.





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