Auction to remove discretion, says Anil Swaroop
GN Staff | February 3, 2016
The union cabinet today has cleared a proposal to sell coal to non-power sectors like steel, iron and cement through auction. With this the past practice of selective allocation comes an end and potentially raising costs for users.
State-controlled Coal India Ltd will put up a quarter of its production for auction to non-power companies following Wednesday’s decision by the cabinet, which was chaired by prime minister Narendra Modi.
The cabinet gave its approval that all allocations of linkages/Letter of Assurance (LoAs) for non-regulated sector viz. Cement, Steel/Sponge Iron, Aluminium, and Others [excluding Fertilizer (urea) sector], including their CPPs, shall henceforth be auction based. The tenure of fuel supply agreement (FSA) will be as decided by ministry of coal from to time.
The framework attempts to make the coal available in a fair manner to the end-users. The proposed auction methodology leads to the price through a market mechanism; it does not seek to maximize revenue.
It ensures that all market participants of non-regulated sector have a fair chance to secure coal linkage, irrespective of their size. “The aim is to remove discretion,” said coal secretary Anil Swarup, who has also been instrumental in auctioning coal mines to private companies.
India has launched a round of auctions of mines so that private firms can extract coal for their own use, after the supreme court in August 2014 cancelled more than 200 illegal coal block awards made over two decades.
It does not seek to maximize revenue. It ensures that all market participants of non-regulated sector have a fair chance to secure coal linkage, irrespective of their size.
The policy details are as follows: There may not be premature termination of FSAs of non-regulated sector as of now. There will be no renewal of existing FSAs of non-regulated sectors [except FSAs of CPSEs and fertiliser (Urea)] which are maturing in 2015-16 onwards, after completion of their current agreement tenure. The existing FSAs with Central Public Sector Enterprises (CPSEs) may continue to be renewed on expiry; for additional linkages, CPSEs may participate in auction. To start with, in the first tranche, the quantities corresponding to FSAs of non-regulated sector [except CPSEs and Fertilizer (Urea)] maturing in 2015-16 onwards and 25% of incremental Coal India Limited (CIL) / Singareni Collieries Company Limited (SCCL) production during 2015-16 over 2014-15 will be put up for auction.
For auction of linkages, separate quantities shall be earmarked for sub-sectors of Non-Regulated sector. The sub-sectors could be Cement, Sponge Iron/Steel, Aluminium, and Others [excluding Fertilizer (urea) sector], including their Captive Power Plants (CPPs) etc. Auctions shall be conducted by CIL/SCCL.
Policy directions will be issued by the Ministry of Coal and will be implemented by CIL/SCCL.
Earlier, the SC vide its judgements in August and September, 2014, had declared 204 coal mines/blocks allocated since 1993 as illegal on the grounds that the procedure followed was arbitrary, Pursuant to this judgment, e-auction of Schedule II and Schedule III coal mines was conducted. The same philosophy of non-discretionary allocation could be extended for the coal linkages as well. This would require CIL to allocate linkages through a market-based mechanism.
Coal linkages to various sectors are governed by New Coal Distribution Policy (NCDP) issued by the Ministry of Coal on 18.10.2007. Under the NCDP, a new system of issuance of LoA)was introduced for Power, Cement and Sponge Iron sectors. Under this system, requests for Linkage/LoA are forwarded to the Administrative Ministries for their recommendation. Recommendations are placed before Standing Linkage Committee (SLC/LT) which authorizes issue of LoA, However, no new linkages or LoAs have been allocated to non-regulated sector since 2007.
JV for infra project
Cabinet has also approved formation of joint venture companies with state governments to mobilize resources for undertaking various rail infrastructure projects in the State
he coint venture companies would be formed with equity participation of Ministry of Railways and concerned State Governments. Each Joint Venture (JV) would have an initial paid up capital of Rs. 100 crores based on the quantum of projects to be undertaken. The Ministry of Railways’ initial paid-up capital will be limited to Rs. 50 crore for each State. Further infusion of fund/equity for the purpose of the projects shall be done after approval of the project and its funding at the level of appropriate competent authority.
The JV can also form project-specific SPVs with equity holding by other shareholders like Banks, ports, public sector undertakings, mining companies etc. The Joint Venture exercise would ensure greater participation of State Governments in implementation of Railway Projects both in terms of financial participation as well as decision making process. This will also facilitate in faster statutory approvals and land acquisition. Besides travelling people, various cement, steel, power plants etc. would get the necessary rail link for transportation of their raw material and finished products.
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