State-run miner, Coal India Ltd. (CIL), has implemented a new pricing mechanism for deriving the base price used in linkage auctions for the non-power sector, thereby making a gradual shift from the fixed price process.
In a recent development, the company has proposed to use the Wholesale Price Index (WPI) as a basis for indexing the base price for linkage auctions. Here, the percentage change in WPI would be applied over the prevailing notified price to calculate the new price.
Further, the indexation of basic price would be carried out to the extent of 25% of the WPI movement. Moreover, there will be a cap of 5% at upper end and 2.5% at lower end to adjust the final WPI.
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It is important to note that CIL carries out separate one-time auction for various non-power sectors viz. cement, sponge iron, captive power plants, steel, other (non-coking) and other (coking), that are covered in a particular tranche of sale under the linkage scheme. These auctions are generally held annually and warrant long-term supply for minimum of five years.
Here, the notified coal price, fixed by CIL, is used as reserve (floor) price for bidding process. The same has not been revised since the past five years.
So far, five tranches have been concluded. Under the sixth round, auction for the sponge iron sector was recently held in February.
New price list
Based on this methodology, CIL has rolled out a new set of non-coking coal prices for the non-power sector that would be used in the upcoming rounds of linkage auction.
These prices, termed as ‘Modulated Price’, are provided under two separate sets: one exclusively for Western Coalfields Ltd. (WCL) and the other for the remaining coal-producing units of CIL, as per the prevailing practice.
In case of coking coal, where the individual subsidiaries have been accorded the power to fix the prices, the same methodology would be followed to calculate the prices.
Salient features
1. Modulated Price will be calculated on the basis of WPI movement of December every year vis-a-vis December last year, and will be made effective from 1 April of the following year.
2. Accordingly, the newly derived modulated price will be the base/floor price for linkage auctions that would be held post 1 April, 2023.
3. These prices will be applicable for the fuel supply agreement (FSA) executed pursuant to linkage auction of sixth tranche and onwards. For FSA executed in previous tranches, the extant pricing provision will continue.
4. The premium fetched at the time of auction will be applicable as a percentage over the modulated price. This will remain unaltered throughout the FSA tenure.
5. In case there is change in modulated price during the course of auction of a particular sub-sector, either due to change in notified price or application of revised modulated price (in April), the ongoing auction will continue with the earlier modulated price. However, during actual coal supply, the new modulated price will be applicable.
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