The Cabinet Committee on Economic Affairs has increased the tenure of fuel supply pact up to 30 years with a view to strengthen domestic coal availability for the steel industries.
The provision is aimed to provide long-term coking coal supplies through linkage auction, and in turn reduce dependence of steel sector on imported coal. However, the government has not specified whether the reform would be implemented for the existing linkage holders or carried out in the next phase of auctions.
It is pertinent to note that steel sector has been given special preference in linkage auction regarding FSA (Fuel Supply Agreement) tenure, among the various non-regulated sectors. Incidentally, FSA, in case of sponge iron, cement, CPP and other sub-sectors, remains valid up to 10 years (originally five years, which could be further extended by another five years).
Previous modification in FSA for steel industry was carried out in Oct’18, wherein the tenure was increased to 10 years, which could be extendable by further five years on mutually agreed terms between CIL and the bidder. The same has been kept in place since the fourth tranche of linkage auction.
During FY20, CIL had concluded fifth tranche of coking coal auction for steel sub-sector, in which coal linkage to the tune of 1.3 MnTPA was booked by the consumers with no premium.
In view of the delay in substantial investment required for setting up of coking coal washeries to yield quality product domestically, the latest reform is likely to ease steel sector’s difficulties to an extent.
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