CIL’s Fourth Tranche of Linkage Auction Receives Steady Start from Sponge Iron Sector

CIL’s coal linkage auction has received overwhelming response from the sponge iron sector, as market sources have reported that coal quantity offered were fully booked on the commencement of the auction, while fetching a healthy premium on different grades.

The undergoing auction is the fourth tranche of CIL’s linkage auction for non-regulating sectors, which is initially conducted for the sponge iron sector, and would later be followed for the Cement, Captive power plants (CPP), ‘Others (non-coking)’, Steel (coking) and ‘Others (coking)’ sectors.

CIL’s auctions for sponge iron sector have started from 26 Jun’18 and are scheduled till 13 Jul’18.

Media sources have claimed that the 100,000 MT coal of Grade G11 offered from the New Kusmunda mines of SECL, was fully booked at a premium of INR 885/MT on the first day of auction. The base price of this grade of coal was 1145/MT.

Another lot of coal from SECL, offering 50,000 MT coal of G7 grade from Surakachhar mine was booked at a premium of INR 885/MT. The base price of this coal grade was INR 2311/MT.

The day 2 of the auction had seen 100,000 MT of G7 grade coal sold at a premium of INR 1280/MT, from SECL’s Chirimiri mine. While a lot of 100,000 MT of G12 grade coal was also booked at a premium of  INR 870/MT on the same day, being offered from MCL’s Jagannath mine at a base price of INR 1063/MT.

The Indian government has decided against renewing fuel supply agreements signed on nomination basis with the non-power companies, and said these pacts would be replaced with supply contracts decided through e-auctions. Accordingly, the consumers have been urged to participate in the respective auctions for non-power sector to secure long term coal supply, once their contract expires.

Methodology of the Coal linkage auction:

CIL has been following a transparent computerised system to carry out the coal linkage auction, which does not involve any manual interference.

The coal quantity along with an initial reserve price is offered for a particular coal grade, against which the bidder has to quote the quantity which he wish to book in the auction.

If bids are received for quantity greater than offered quantity, then the price is increased by the system and the process is iterated till demand-supply equilibrium is established. The round with higher revenue then becomes the winning round.

On the other hand, if bids are received for quantity less than offered quantity, then all bidders will get coal at reserve price.

Illustration:

Revenue in Round 3 and 4 is compared.

Result: Round 3 is winning round, 1 MT coal is awarded to successful bidders on pro-rata basis @ INR 35/MT premium over the reserve price.

A total quantity of 7,271,000 MT coal via 45 lots is being put forward for the sponge-iron sector, which are scheduled for auction in three slots per day till 13 Jul’18.