In what could have far-reaching consequences on how India’s coal supplies are used, a court-appointed committee is considering replacing the current system that favours core sectors such as a power, fertilizers and steel with a more transparent, direct supply chain between coal companies and consumers.
The policy, which is still at a draft stage, could potentially alter how coal, whose distribution is wholly controlled by the government, is allocated across users.
It represents a departure from the current practice of doling out coal through a hierarchical or “linkage” system, which supplies core sectors such as power and steel, first, followed by distribution to consumers in the so-called non-core sectors. The non-core sectors have complained that they pay higher prices for coal sold through online sales.
More than 90% of India’s annual coal production of 385 million tonnes (mt) goes to sectors such as power to boost the country’s huge electricity shortfall, followed by fertilizer, cement and steel companies that depend on coal to meet their energy needs.
Legislation to allow private players with captive mines to also sell coal has been pending for two years.
The committee’s draft recommendations include an e-market to allow suppliers and consumers to connect and settle on coal prices more in line with the market rates.
Coal prices currently vary between Rs400 and Rs2,000 per tonne depending on the grade. As the coal in India tends to be of poorer quality, Indian prices are 10-30% lower than the global average.
Some industries, however, feel e-marketing is not going to stabilize uncertainties in supply and cost.
“It will benefit our industry only if we get assured supply through the linkage route,” said N.K. Patnaik, vice-chairman of the Sponge Iron Manufacturers Association, which requested the government for core-sector status recently.
Steel made from sponge iron accounts for nearly 50% of India’s steel production.
The court committee is chaired by coal secretary H.C. Gupta and includes representatives from several other ministries, such as power, steel, and the Planning Commission.
The draft policy says those consumers whose end products and services are regulated, such as power, will still receive priority.
Coal India Ltd (CIL), the country’s largest coal producer, will meet 90% of the requirements of power utilities, such as NTPC Ltd and state power utilities, down 10% from the current 100%.
Currently, big consumers requiring more than 5,000 tonnes per month receive clearance from the coal ministry and those with lesser need to get it from CIL.
Consumers that will require more than 4,200mt a year will have to enter into a fuel-supply agreement with CIL or any of its eight subsidiaries. Consumers that require less than that amount will have to procure coal through state governments. CIL, which has not revised prices for the past three years, would work out a pricing formula based on the Planning Commission’s recommendation and revise it annually.
The draft policy also recommended that since CIL will have to meet demands through fuel-supply agreements to all consumers, it may have to import coal.
The committee on coal distribution policy was set up on the direction of the Supreme Court in December after some 130 writ petitions were filed in separate high courts over the coal ministry’s decision to introduce e-auction sales of coal in October 2004. Most of these cases were clubbed together and moved to the Supreme Court, which banned the e-auction.
The petitions protested the online auction of coal, where prices were benchmarked 30% higher than the prices reserved for the core sectors.
But coal authorities maintained that non-core sectors—more than 5,000 of them saw licences revoked after a verification drive—sold their allotments on the black market. The e-auction was introduced as a way to make coal available, but curb misuse by releasing more coal in the market, said an official in the ministry who did not wished to be named.
Sponge-iron producers, however, say the e-auction primarily helps coal traders and not manufacturers who want a regular supply.
Following the court’s ban on e-auction, coal companies introduced e-booking, which allows companies to reserve coal over two months in advance. The report said at least 50mt will be made available in the next two years.
Currently, companies can use mining licences for coal blocks only for their own use and cannot sell in the market. The amendment to the 1973 Coal Mines Act to allow private players to do this has stalled for two years. Coal was also struck off the Essential Commodities List, which means legal action cannot be taken against a trader indulging in black market trading.
Coal prices were deregulated in 2000, allowing CIL, which together with Singareni Colliery Co. controls about 95% of production, to fix the prices of different coal grades. Of the 137 coal blocks auctioned off, 12 private players are producing roughly 27mt.