Coal India Ltd. (CIL) has initiated the sixth tranche of coal auctions under the linkage scheme for the non-power sector that warrant long-term fuel supply for a minimum of five years.
Sales via linkage route are carried out annually through separate one-time auction for individual sectors viz. cement, sponge iron, captive power plants, steel, other (non-coking) and other (coking).
For the sixth tranche, CIL has decided to begin with sales for the sponge iron sector first, while auctions for the remaining sectors are expected to be conducted later in a phased manner.
The current round features sale of 11.05 million tonnes (mnt) of coal from the various mines of CIL subsidiaries that would be auctioned in a 24-day-long process starting 9 February, 2023. South Eastern Coalfields (SECL) alone has offered a bulk of 7.67 mnt for sales, while the remaining quantity of 3.38 mnt are from other subsidiaries.
Big relief for non-power sector
The announcement of fresh linkage auctions came as a big relief for the non-power sector that has been reeling under supply tightness in both domestic and international markets.
As per policy guidelines, the tenure of fuel supply agreements (FSAs) against linkage auctions was five years, which was initially proposed for extension for another five years upon mutual agreement.
However, CIL has informed that the expiring FSA contracts under tranches-I, II and III would not be renewed beyond five years.
In the aftermath of this decision, the non-power sector was compelled to procure coal at high prices at regular auctions where CIL subsidiaries had drastically reduced volumes in order to divert more supplies to the thermal power plants.
Apart from these domestic-side bottlenecks, the non-power sector has been facing hurdles in terms of imported coal procurement amid soaring prices in the global market.
As per CoalMint Research, average prices of South African 5,000 NAR coal, which is mostly preferred by Indian sponge-iron manufacturers, surged by almost 117% y-o-y to $212.02/t in 2022.
It is expected that the upcoming auction will provide a lifeline for the non-power sector as the buyers will look to secure fresh supplies against their expiring linkage contracts. Nevertheless, in the present scenario where there is huge demand for coal from the thermal power plants, the auctions are likely to attract higher bids in the competitive market.
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