CIL TO OPT FOR COAL LINK­AGE AUC­TION MODEL

Resource Digest - - MINING -

Ev­ery coal con­sum­ing sec­tor will be ear­marked def­i­nite vol­umes of the fos­sil fuel which would then be of­fered only to com­pa­nies in the seg­ment through for­ward auc­tion. The vol­ume for each seg­ment will be de­ter­mined on the ba­sis of deemed de­mand for the fos­sil fuel in the sec­tor which is be­ing worked out by SBI Caps. The mech­a­nism would be im­ple­mented for sec­tors other than power to be­gin with.

“For ex­am­ple, if 5 mil­lion tonnes of coal is ear­marked for sponge iron, all sponge iron makers would be al­lowed to bid for a por­tion of this vol­ume on the ba­sis of their coal re­quire­ment. The bid­ding process would be sup­plier-con­trolled as­cend­ing mar­ket clear­ing auc­tion model which would fix the price at which Coal In­dia will sup­ply dur­ing the con­tracted pe­riod,“a se­nior coal sec­tor of­fi­cial said.

De­cid­ing on the right vol­ume of de­mand is nec­es­sary be­cause the price dis­cov­ery auc­tion will be based on the quan­tity of coal be­ing of­fered. If it's larger than re­quired for any sec­tor, prices dis­cov­ered will be lower than real mar­ket prices lead­ing to losses for Coal In­dia. If vol­umes of­fered are less than to­tal de­mand, the prices dis­cov­ered may turn out to be higher than real prices lead­ing to tighter mar­gins for the par­tic­i­pat­ing com­pa­nies. In a bid to re­place the age-old sys­tem of offering coal sup­ply con­tract on nom­i­na­tion ba­sis with an auc­tioned linked sup­ply sys­tem the gov­ern­ment has de­cided to adopt the mar­ket clear­ing auc­tion model. This model of auc­tions sim­ply of­fers a vol­ume of coal to be sold and asks in­ter­ested par­ties to bid for the whole or part of this coal vol­ume at a def­i­nite price fixed by the seller. In case sum of to­tal bids vol­umes by all bid­ders are more than the to­tal vol­ume be­ing of­fered in the auc­tion, the price of the coal of­fered would be in­creased by cer­tain per­cent­age. Fol­low­ing in­creased price of the coal, some bid­ders are ex­pected to opt out of the bid process. This will re­sult in bids for to­tal vol­ume fall­ing by cer­tain ex­tent.

DE­CID­ING ON THE RIGHT VOL­UME OF DE­MAND IS NEC­ES­SARY BE­CAUSE THE PRICE DIS­COV­ERY AUC­TION WILL BE BASED ON THE QUAN­TITY OF COAL BE­ING OF­FERED

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