CIL ramps up coal prices for non-core customers

Several Coal India Limited (CIL) subsidiaries have unilaterally increased prices of coal for non-core consumers on the basis of e-auction responses.

CIL subsidiaries "" Western Coalfields Limited (WCL), Bharat Coking Coal Limited (BCCL) and South Eastern Coalfields Limited (SECL) ""have had encouraging results from e-auctions. The bidding started at 5 per cent over the notified price for non-core consumers in all three coal companies and went up to between 30 and 35 per cent.

Eastern Coalfields Limited (ECL) is also planning an e-auction shortly.

Coal companies are enthusiastic about e-auctions because it allows them to raise the notified price of the commodity without having to go through the hassles of seeking clearances from CIL and the coal ministry.

They are allowed to charge the highest bid amount as the base price of coal for the subsequent month from non-core consumers till the time of the next e-auction.

If the e-auction bidding, which again starts at 5 per cent over the notified price, fetches a lower return, then that rate becomes the base price for the next month.

The Nagpur-headquartered Western Coalfields Limited (WCL) for example has effected an average 30 per cent hike in coal prices for non-core consumers after the e-auction fetched them better returns to that level. The e-auctions for WCL were held on April 27 and 29.

The coal company was sure of netting good returns as prices in the open market had always been ruling high. The auction, done with help from Metal and Scrap Trading Corporation (MSTC), enabled WCL to dispose 1.5 lakh tonnes of coal at 30 per cent higher rate than the notified price.

WCL has now increased the notified price of coal by the same percentage as the new price now is "market determined".

However, the non-core consumers are not too happy. "We were purchasing marginal amount of coal from the open market as our linkage was not being increased. Now the floor price of even what is being supplied as linkage has been increased by 30 per cent arbitrarily," said a consumer.

The Vidarbha Industries Association is planning to make a representation to the WCL in this regard. The WCL sells about 4 million tonnes or around 10 per cent of its total production to non-core consumers every year.

The rest is picked by core consumers, mostly by the power and steel sectors. A substantial quantity of coal sold to non-core consumers has traditionally been making its way to the open market where demand determined the premium that the seller got.

The process of e-auction nullifies this practice and allows the coal company to pocket the premium as real consumers bid for coal.

However, as the coal company is taking the highest bid as the notified price for the subsequent month prices of coal in the open market, prices are expected to rise further and impact the financial outgo of real non-core consumers.