Consequent to SC verdict banning e-auction of coal

Ambarish Mukherjee

New Delhi, Dec. 14

Coal India Ltd (CIL) has got into a jam following the Supreme Court verdict banning e-auction of coal and asking the company to refund to the consumers the extra amount over notified prices that the company had collected through e-auction sales. Consequently, CIL is now trying to wriggle out of the situation by re-categorising consumers.

E-auction of coal has been stopped following the SC order on December 1.

The differential pricing of coal that was being practised by CIL through the e-auction system violated the right to equality guaranteed in the Constitution under the Article 14 . Also, the SC said that public interest and not profit motive should guide public sectors' functioning.

When it began

This entire practice began around two-and-a-half-years ago when one of the Coal India subsidiaries, namely Bharat Coking Coal in 2004 started it and it later spread over to other subsidiaries.

As a result while core sector consumers like power plants, cement and steel manufacturers continued to receive coal supplies at the Government notified prices, non-core sector consumers ended up paying much higher prices as the base price for each auction was being fixed by the coal companies based on the highest realisation in the previous auction. There had been several occasions when buyers had to pay anywhere between 30 to 50 per cent more than the notified prices, sources said.

Currently, coal is supplied to two categories of customers core sector and non-core sector.

Highest price

The customers in the non-core sector are of three types linked customers, non-linked customers, and small and tiny industries. In this category, through the e-auction process, the highest price was being discovered and this was the rate at which the non-linked customers, including non-manufacturer customers, were getting coal.

The price for the linked customers would then be worked out as the weighted average of the auction price of the previous month. The small and tiny units were being charged 20 per cent above the notified price.

To bring in equality of pricing, one of the proposals being examined is of increasing the number of categories by making the non-core category into different segments, which will make it possible to charge multiple pricing, sources said. Charging different prices for different categories has not been disallowed.

One of the reasons cited by CIL for starting the auction process was to bring in transparency and curb the role of mafias. However, the entire exercise started facing serious criticism after complaints came up that the auction process too was being cartelised by a handful of purchasers.

(This article was published in the Business Line print edition dated December 15, 2006)
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