India approved e-auction of coal sold by different companies via a common window to streamline availability and pricing of the fuel.
Instead of specific auctions, the Cabinet Committee on Economic Affairs decided to auction coal for all end users through the single window. Earlier, the fossil was offered through e-auction only to non-regulated sectors such as steel, cement and iron ore.
The common e-auction window eliminates the discretion with coal companies of allocating the fuel to different end-use sectors. The unified mechanism, said Jayanta Roy, senior vice president at ICRA Ltd., would ensure better availability of domestic coal for the non-regulated sector.
Why This Move
The new auction rules will remove market distortions and provide a single rate for all consumers. That will improve demand-supply efficiency. The government expects higher availability of domestic coal with better price stability and predictability, bringing down imports.
What It Means For Industries
According to VR Sharma, managing director at Jindal Steel & Power Ltd., the decision will remove the imbalance between power and other end-user industries of coal including steel, which have always been deprived of the fuel. “With this, the government is playing a level field and at the same time placing enough pressure for Coal India to increase its output,” he said.
Rohit Natarajan, assistant vice president-research at Antique Stock Broking, said a unified coal e-auction window is expected to be positive for Coal India as the number of buyers will rise. But what grade of coal is sold matters, he said.
Though imported coal prices are high, its gross calorific value is high too, according to Natarajan. “Should Coal India push lower grade (lower GCV) coal in e-auction window, it may not have as big a impact.”
How It Impacts Power Producers
Power companies will now buy via the same window as other industries, Natarajan said. E-auction was segregated in the power sector and for non-regulated sectors. Still, it may not necessarily be negative for them.
“Coal cost is technically a pass-through for a regulated power plant,” Natarajan said. “The near-term shortfall can be recovered in fuel and power purchase price adjustment or these companies could seek higher energy charges in next tariff order.”
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