For the first time in its history, Coal India Ltd on Friday will begin the process of giving coal linkages or fuel supply agreements to customers on the basis of a transparent auction, similar to telecom spectrum auctions.

According to the reserve prices on the electronic auction platform, MSTC Ltd, Coal India could get more than ₹500 crore for auctioning the linkages.

The first tranche of auctions comes almost four months after the Cabinet cleared a decision to auction coal linkages for the non-regulated sectors of steel, cement and aluminium.

In the first tranche, between June 10 and June 16, only sponge iron manufacturers will be participating and these companies will be able to bid for 3.78 million tonne of coal linkages.

At the pre-bid conferences almost all the major sponge iron manufacturers in the country including Jindal Steel and Power Ltd, Essar Steel, and Monnet Ispat were present.

“There has been a lot of interest for the coal linkage auction. Coal India had to extend the registration timeline to accommodate everybody. All the major manufacturers are expected to participate in the bidding,” a senior Coal Ministry official told BusinessLine .

The actual auction process of the coal linkages will be what is known as a ‘Non-Discriminatory Ascending Clock Auction Process’. The process is similar to the telecom spectrum auctions.

Here, a specified amount of coal will be on offer at a reserve price in the first round. If the demand is more than supply, the price increases.

This continues till demand is less than or equal to 100 per cent of the supply. Following which, Coal India can select the price offer of the round which gives it maximum revenues.

The bidders will then be allotted coal linkage.

Till now, granting of coal linkages was governed by the New Coal Distribution Policy of October 2007.

Requests for coal linkages were forwarded to the administrative ministries for their recommendations, which were then placed before the Standing Linkage Committee. But, despite the policy, no new linkage has been allotted to the non-power sector since 2007.