Having auctioned out 29 coal blocks last month, the Government is now setting up the stage for preparing a draft methodology to give away coal linkages for the power sector through the competitive bidding process. End users which don’t have captive blocks are normally given linkages by the Government on a short term basis.
In order to expedite the process, Coal India ltd (CIl) has been asked to complete its contractual obligation of supplying up to 80 per cent dry fuel to the power sector under the existing linkages, so that future allotment of linkages can be auctioned out. There is a likelihood that state power distribution companies may invite tariff-based bids and linkages could be awarded to the lowest bidders.
According to sources aware of the development, during a recent meeting of the Inter-Ministerial Committee (IMC, headed by Additional Secretary in the Coal Ministry), which was formed in January this year to finalise the modalities of auctioning coal linkages, it was decided that a draft methodology for initiating the auction process should be prepared “immediately”. In order to do so, CIl should first meet its obligation of supplying up to 80 per cent of annual committed quantity (ACQ) to the power sector. As per the fuel supply agreements (FSAs) which CIl has inked with various power entities, it has to prioritise coal supply to them.
To gauge the actual requirement of linkages, especially by the power sector, the IMC has asked the Power Ministry to conduct a demand-supply study based on existing linked capacity, upcoming capacity and capacity tied up under power purchase agreements (PPAs) to enable further discussions. Official sources said that as movement of coal is dependent on capacity of railways, a coalfield-wise area of supply needs to be set up in consultations with the railways. Auctions, they added, may be held based on this roadmap. At locations, where coastal movement is found to be economical, this factor will also be taken into consideration.
As far as coal linkages for non-regular sectors like steel and cement are concerned, the IMC felt that as their requirements are not as much compared to the power sector, therefore the linkages can be allocated to them separately.SBI capital Markets limited (SBICAP) has been engaged as consultant in CIl for the purpose of suggesting a methodology of auction and preparation relevant bid documents. It had held consultations with the steel and cement manufacturers regarding the approach which needs to be adopted for auction of coal linkages.
Coal linkages are normally allotted through a standing linkage committee of the Coal Ministry. However it was decided that these will be allotted through a competitive bidding process with the aim of maintaining transparency in the entire process. The IMC formed for finalising the modalities of the auction process, consists of senior officials from ministries of power, steel, railways, and law apart from coal.