The Cabinet Committee on Economic Affairs on February 26 introduced a major reform aimed at removing market distortions and introducing a common e-auction window. According to a Government press release, the CCEA approved the following:
- i. An offering of all the non-linkage coal by coal companies through one e-auction window of Coal India Ltd (CIL)/Singareni Collieries Company Ltd (SCCL). This e-auction will cater to all the sectors—namely, the power sector and the non-regulated sector (NRS), including traders. Coal would be offered through this auction in place of the present system of sector-specific auctions.
- ii. The above will be subject to CIL/SCCL meeting the coal linkage requirements against the existing linkages. It does not impact the current linkages to power and non-power consumers at contracted prices.
- iii. Coal offered through the single e-auction window shall be transport mode agnostic with the default option being through the rail mode. However, coal may be lifted by the consumers through the road mode/other modes depending upon their choice and suitability without paying any additional charges or discounts to the coal companies.
- v. Long-term allotment of coal by CIL/SCCL, without affecting the supplies against existing coal linkages, to their gasification plants shall be allowed at prices as may be decided by the coal company. However, the taxes, duties, royalty, etc., shall be paid by the coal companies on the notified prices of coal for the power sector.
The major impact would be against market distortions. A single rate will evolve for all the consumers in the e-auction market. It would increase operational efficiencies and lead to an increase in domestic coal demand by efficiency in the domestic coal market.
Besides, the discretion presently vested in coal companies of allocating coal to different end-use sectors will be eliminated. Further, the coal companies shall be able to establish coal gasification plants by availing coal from their mines. It shall help in developing clean coal technology in the country.
Removal of market distortions through the offer of coal under a single e-auction window at the same rate for all the consumers of the economy will attract more consumers towards domestic coal. Thus, the demand for domestic coal is expected to increase.
CIL also has ambitious coal production plans for the future to produce 1 BT (billion yonne) coal by 2023-24. Hence, with better availability of domestic coal, better price stability, and predictability, the import of coal is expected to come down drastically. This would reduce the dependence on imported coal and would help to make Atmanirbhar Bharat.
This measure would ensure the sustainability and development of the coal gasification technology. The use of clean coal technology like coal gasification would mitigate the adverse environmental impacts of coal usage. There are no financial implications of the decision, for clubbing of the e-auction windows would not involve any additional cost to the coal companies.
The coal market is segmented and regulated; consequently, there are many different market-discovered rates for the same grade of coal in each segment of the market. Segmentation with rate differentiation results in coal market distortions. By these reforms, coal of any particular grade may be sold in the market at one rate (one grade, one rate), with the default mode of transport being Railways, through a transparent and objective e-auction mechanism.
A single e-auction window would enable the coal companies to sell coal through the market-discovered price mechanism to all the consumers. Besides the above, the need of the hour is to move away from the conventional coal use to clean coal technologies.
Coal companies are planning to diversify their business via the coal gasification route. In the coal block allocation mechanism, coal gasification is being encouraged through incentives like rebates in the revenue share. Similar incentivization is necessary to help the early establishment of this new use of coal and related technologies. The coal companies would have the flexibility to supply coal to their coal gasification projects.
