KOLKATA (miningweekly.com) – India’s Coal Ministry has finalised the details of the proposed coal supply linkage auctions to various user industries.

According to minutes of deliberations of an inter-Ministerial committee (IMC), which laid down the supply linkage auction last Thursday, 25% of the incremental production from producer Coal India Limited (CIL) during 2015/16 would be set aside for sale through the auction route.

In every subsequent year, similar volumes, which equated to around 25% of incremental volume over the previous year, would be auctioned and each supply linkage contract would be valid for five years, the IMC established.

Simultaneously, all existing fuel supply agreements (FSAs) between CIL and user industries would not have the termination or foreclosure options once the supply linkage auction gets rolling. Instead, in the first year, only those FSAs with industries in the nonregulated sector (where end-product price was not administered by the government), but expiring in the current year, would be allowed to lapse.

The volume of coal freed up following the lapse of these FSAs would be added to the total volume of coal put up for supply contract auctions, the minutes of the meeting show.

The auction modalities have been developed by State Bank of India (SBI) Capital Markets Limited (Caps), the financial arm of the country’s largest commercial bank SBI.

SBI Caps has stipulated that: ”the auction linkage shall be a nondiscriminatory ascending clock auction wherein the auctioneer increments the price or the premium on the electronic platform until demand-supply equilibrium was established. In this methodology, prices shall be directed by the supplier coal company through algorithm iteration and each successful bidder pays the same price”.

The floor price for the auction would be set at the relevant run-of-mine price of CIL product and the bidder would have to pay a premium over the floor price for each grade of coal available, SBI Caps has proposed.

However, despite requests from several industry segments, the Coal Ministry has decided against reserving volumes of coal for auctioning to specific coal consuming sectors.

No volume of coal would be set aside for small and medium-sized coal consuming industries either, even though the latter had argued that they did not have the financial wherewithal to participate in competitive bidding along with large industries to secure fuel requirements.