Policy drawn up to reclassify power buyers

A new coal distribution policy, likely to be finalised by the month-end, seeks to put in place a new system for ensuring fuel linkages to crucial sectors like power and fertilisers.

A draft of this policy, prepared by a committee chaired by Coal Secretary HC Gupta, has recommended that the existing core and non-core sectors be reclassified into "regulated" and "other" sectors for the purpose of prioritising coal distribution.

The "regulated" sector will include power utilities and private power producers besides fertiliser units, the prices of which are controlled by a regulatory authority. The "other" sector will include steel, cement and all other sectors where prices are not regulated.

In the existing coal distribution policy, the steel and cement sectors, and the railways were clubbed in the core sector, which meant they were allotted coal at government notified prices.

The power and fertiliser sector accounted for 76 per cent (266.58 million tonnes) of total coal dispatches in 2006-07.

Under the draft policy, 90 per cent of the demand from the "regulated" sector is proposed to be met by Coal India Ltd (CIL).

This will be done through CIL and the buyer signing a letter of assurance (LOA), which will later be converted into fuel supply agreements. The consumers would have to source the balance 10 per cent through e-market or imports. However, all the requirement of pithead power plants will be met by CIL.

For the "other" sector, only 75 per cent of the requirement will be met through the LOA. The other 25 per cent would have to be imported or bought through e-auctions.

The draft policy has further recommended division of users based on coal usage. It adds that all consumers who require more than 4,200 tonnes per annum (tpa) of coal will have to buy the coal directly from CIL or its subsidiary companies.

For consumers needing less than 4,200 tpa coal, the requirement will be met through state governments.

For small and medium sectors, where demand is less than 4,200 tpa, the policy has recommended that the allocated amount of coal for distribution through central and state agencies be raised from 5 million tonnes to 8 million tonnes.

It has also suggested that CIL be given the go-ahead to import coal from time to time in order to meet the supply. Moreover, for imported coal, CIL would have the freedom to adjust overall coal prices so that extra expenditure incurred in the import is met.

E-marketing, on the other hand, will continue with the coal ministry being asked to increase the quantity to 50 million tpa from the current 25 million tpa. This is being done "so that e-marketing price reflects the realistic market price" the draft policy states.