Coal India Ltd lines up 55 MT coal to get the best out of auctions

KOLKATA: Coal India Ltd is betting big on coal auctions, while it looks to sell about 55 million tonnes (mt) of the dry fuel through this route in the current fiscal year.

For the state-run miner, auctions fetch the highest price among all sales channels and account for a sizeable chunk of profit. With coal stocks at power plants reaching 26 mt, the highest in several years, CIL can now offer coal to anyone through e-auction until last month, the company was to first offer coal to electricity utilities. The coal ministry has now allowed it to offer it to everyone, including power producers.

In the just-ended fiscal year, CIL sold around 46 mt through e-auction, which was lower than the 58 mt it sold in fiscal 2013-14, a senior official said. "Although in percentage, this (sale through auction) would be only 10% of the total production in 2015-16, a major chunk of CIL's profits come from e-auctions, which fetch at least 1.4 times the prices of coal sold to power plants."

CIL is expecting a rise in coal demand as many companies that have lost their captive mines following a Supreme Court's order in 2014 will likely try and source the fuel from auctions.

The average price of coal being sold by CIL at notified rates currently stands at Rs 1,600 a tonne. The average realisation of e-auction is much higher: It was Rs 2,200 in 2013-14. According to an estimate by ratings firm ICRA, the overall capacity in the independent power producer segment that would be affected by the Supreme Court order is around 18 GW, comprising a mix of operational projects (6.3 GW as on July 2014) and under-construction projects (11.4 GW, expected to become operationalover the next two years).

The affected capacity in the state sector is estimated at 19 GW. The government has started reallocating through auctions the blocks for which mining permits have been cancelled by the SC.

Any delays in completing the process could increase coal consumers' dependence on e-auction or imports. According to ICRA estimates, steam coal demand from the power projects affected by the court order is estimated at about 160 mt by 201718. Given that the majority of these projects are to be completed in 2-3 years, ICRA expects a time lag in the availability of coal even after reallocating the blocks.