Coal policy tweak to arrest price distortions evokes mixed reaction – The Hindu BusinessLine

Clipped from: https://www.thehindubusinessline.com/todays-paper/tp-news/coal-policy-tweak-to-arrest-price-distortions-evokes-mixed-reaction/article65202793.ece

The Union Cabinet gave its nod to a proposal that allowed common e-auction window for coal companies to sell the commodity. RAO GN

The Union Cabinet gave its nod to a proposal that allowed common e-auction window for coal companies to sell the commodity. RAO GN | Photo Credit: RAO GN

Govt believes this will benefit firms, consumers feel they may end up competingwith traders

Consumers of commodities such as coal remain apprehensive about the government’s latest policy tweak to arrest distortions and introduce a mechanism that will evolve a single rate in the coal e-auction market.

Recently, the Union Cabinet gave its nod to a proposal that allowed a common e-auction window instead of sector-specific auctions for coal companies to sell the commodity. Till now, India had five types of e-auctions based on different types of customers – special forward e-auction for power sector, exclusive e-auction for end-users of coal in non-regulated sector, spot e-auction for all consumers and traders, special spot e-auction for all consumers and traders, and special spot e-auction for import substitution for coal importers.

Increasing efficiency

A senior official in the Coal Ministry said the move will remove any market distortion, increase operational efficiencies and lead to an increase in domestic coal demand, besides eliminating the discretion of making allocations to different end-use sectors currently vested in coal companies.

According to the government, this would mean better premium and higher realisation for companies like Coal India as it will attract more consumers towards domestic coal.

But consumers believe that the government’s decision to bring all e-auction of coal sold by different companies under a common window will be a challenge, as it will mean competing primarily with traders.

Industry wary

According to an industry insider, under a single and common auction window, the participation will be huge and it will be the only chance for consumers to book coal. Given that coal prices are already ruling high both in international and domestic markets, the industry is concerned if this could lead to higher prices.

“We do not know about the impact – it may be beneficial or may be not also. Earlier, there was a spot auction, special forward auction for power sector, exclusive e-auction for non-power sector etc. But with this one-window auction, we are a little apprehensive. Usually whenever there is an auction, the traders try to book the maximum quantity. If most of the quantities are picked by traders, then other consumers have to take it from them at a premium,” an industry person told BusinessLine on conditions of anonymity.

According to Rupesh Sankhe, analyst at Elara Capital India, the demand is high because international coal prices are shooting up. So the imported variable cost is far higher than the domestic coal prices.

“Earlier in the e-auction platform, the premium was standardised; this time, they can get better premium because they will get to know the exact demand at the aggregate level and they can figure out the e-auction premium,” he said.

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