Cabinet Committee on Economic Affairs, chaired by the Prime Minister Shri
Narendra Modi, has given 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.
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.
ensures that all market participants of non-regulated sector have a fair chance
to secure coal linkage, irrespective of their size.
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
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.
directions will be issued by the Ministry of Coal and will be implemented by
auction of coal linkages is transparent, and creates a level playing field. It
ensures that all market participants have a fair chance to secure the coal
linkage, irrespective of their size. It attempts to ensure an optimal
allocation of coal across user industries and geographies.
Supreme Court of India 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
Inter-Ministerial Committee (IMC) was constituted in the Ministry of Coal in
January, 2015 to consider and examine various structures and implementation
models for implementing the competitive bidding for .auction of coal
linkages/LoAs and to recommend the optimal structure that would meet the
requirement of all the stakeholders. The IMC met 7 times since its
constitution. It was decided in the 5th meeting of IMC that auction of linkages
for non-regulated sector should be taken up first. An Approach Paper regarding
proposed methodology was discussed in the 5m meeting of the IMC and was
uploaded on the website of Ministry of Coal (MoC) for inviting comments of the
general public and stakeholders.
responses received from various. stakeholders and individuals, besides comments
from Ministry of Railways, Ministry of Steel and Department of Fertilizers were
placed before IMC for consideration. Further, stakeholder industry associations
presented their views and comments before the 6tn meeting of IMC on 21s August,
2015. The issue was also deliberated by the Committee of Secretaries (CoS) in
its meeting held on 09.10.2015.
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.