The government on Friday announced its new policy for distribution of coal, which gives priority to the sectors of power, fertilizer, defence and railways, re-introduces e-auction, and for the first time makes it binding on producers to deliver assured supplies of coal at the pre-determined price.

The new policy will pertain to only those projects that do not have a captive coal block and instead need to source coal commercially from Coal India Ltd (CIL)—the only company allowed to undertake commercial mining of the commodity in the country.

Labourers carry coal into a truck in Guwahati. The ­demand for coal in 2006-07 was 474.18mt, while supply was 432mt

Mint had reported on 23 August that the government had been considering a proposal to grant priority to power and fertilizer companies and the re-introduction of e-auctioning of coal.

The priority was being accorded because the two sectors operate under a regulated price regime.

The new policy has endorsed this proposal and has laid down that the supply of coal for power and fertilizer units will be determined by efficiency norms laid down by the government and vary for each plant. These have been put in place to prevent misuse by firms demanding more coal than required.

A senior executive at NTPC Ltd, who did not wish to be identified, said: “Though it is a good move, CIL has to step on the development of the coal mines to ensure timely delivery of coal to the projects. It needs to be seen how the pricing will be fixed. Fuel supply agreements (FSAs) should not be one-sided and the prices should be reasonable."

The policy has also guaranteed the sectors of defence and railways, given their strategic importance, too, would be assured supplies of coal.

The new policy has also effected a more than eightfold increase in the existing cap of 500 tonnes per annum for small and medium enterprises (SMEs), thereby precluding the relatively more expensive option of procuring coal through e-auction. It has now been fixed at 4,200 tonnes. The onus will be on state governments to identify SME consumers and an agency that would manage supplies.

For all other consumers, with coal requirement of more than 4,200 tonnes per annum, supply will be three-quarters of what would have been their normal demand.

The new policy has in addition, also for the first time, laid down that coal supplies would be governed by FSAs—which now makes it mandatory for the supplier and the consumer to honour their obligations. At present, FSAs exist only with respect to supply of coking coal to the steel sector.

Prior to signing the FSA, companies would be required to obtain a letter of assurance (LoA) from CIL. This replaces the current system of coal linkages, which essentially allocates coal quotas to individual consumers. These LoAs will be converted into FSAs after specific milestones are achieved by the consumers in a defined period—two years for power plants and one year in case of other consumers.

“Consumers granted LoAs have to furnish a bank guarantee equivalent to 5% of their annual requirement of coal which will be forfeited if the suggested milestones are not achieved within the stipulated period," the official release stated.

To ensure that CIL is able to meet its coal obligations, the new policy allows it to import to meet its supply commitments.

Utpal Bhaskar contributed to this story.