Coal consumers remain apprehensive about policy tweak

Consumers of commodities such as coal remain apprehensive about the government’s latest policy tweak to arrest distortions and introduce a mechanism which will evolve a single rate in the coal e-auction market.

Recently, the Union Cabinet gave its nod to a proposal that allowed common e-auction window instead of sector specific auctions for coal companies to sell the commodity. Till now, India had five types of e-auctions based on different types of customers – special forward e-auction for power sector, exclusive e-auction for end users of coal in Non-Regulated Sector, spot e-auction for all consumers and traders, special spot e-auction for all consumers and traders, special spot e-auction for import substitution for coal importers.

Increasing efficiency

A senior official in the Coal Ministry said that this latest move will remove any market distortion, increase operational efficiencies and lead to an increase in domestic coal demand by efficiency in domestic coal market, besides eliminating the discretion presently vested in coal companies of making allocations to different end use sectors. According to government, this would mean better premium and higher realisation for companies like Coal India as it will attract more consumers towards domestic coal.

But, the consumers believe that this decision of the government to bring all e-auction of coal sold by different companies under a common window will be a challenge as it will mean competing primarily with traders.

Industry wary

According to an industry insider, under a single and common auction window, the participation will be huge and it will be the only chance for consumers to book coal. Given that coal prices are already ruling high both in international and domestic markets, the industry is apprehensive if this could lead to higher prices.

“We do not know what will be the impact – it may be beneficial or may be not also. Earlier, there was a spot auction, special forward auction for power sector, exclusive e-auction for non-power sector etc. But now with this one window auction we are a little apprehensive unless and until it is done properly we do not know what will happen. Usually whenever there is an auction, the traders try to book the maximum quantity. If most of the quantities are picked by traders then other consumers have to take it from them at a premium,” an industry person told BusinessLine on conditions of anonymity. 

According to Rupesh Sankhe, analyst at Elara Capital India, the demand is very high because international coal prices are shooting up. So the imported variable cost is far higher than the domestic coal prices.

“Earlier in the e-auction platform the premium was standardised, this time what will happen is they can get better premium because they will get to know the exact demand at the aggregate level and they can figure out what will be the e-auction premium,” he said.

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