Plans Afoot for India's First Coal Exchange
By Sarita C Singh
June 8, 2020 - India has decided to set up a coal trading platform, taking a giant leap towards completely throwing open the sector to market forces as the country gears up for commercial coal mining auctions, which will increase the number of sellers of coal.
As per the proposal, entire coal produced in the country will be traded on a ‘Coal Exchange,’ an online platform where pricing is determined transparently through demand and supply. The exchange is being thought out on the lines of commodity exchanges, power bourses or the proposed gas exchange. This could mean the end of new Fuel Supply Agreements (FSA) regime of Coal India where the state-run miner signs contracts for coal supply with consumers. Coal India Ltd is expected to remain a dominant player in the sector given its production target of one billion tonnes by 2024 and will sell incremental capacity at market prices, a senior government official said.
Coal consumers and traders welcomed the move but said the exchange should be started only when there are multiple buyers and sellers. The coal ministry is likely to begin auctions of about 50 coal blocks for commercial coal mining on Thursday.
The government official said that discussions have begun in the ministry and a coal exchange is certain to be set up after the government addresses all related concerns.
“We are going ahead with commercial coal mining. So, very soon, we will have more sellers in the market besides Coal India and Singareni Collieries,” the official said. “Coal blocks have also been allotted to state PSUs for sale of coal. On other hand, we will have multiple buyers also. We are thinking of a platform for sale of coal, like we have commodity exchange where other commodities are being traded. We have started discussing it.”
The official said that the proposed coal exchange may be the only trading platform for organised sale of coal. “Nuances like shape and size of the platform, powers, regulations, issue of present FSAs, will all be discussed in due course of time,” he said.
A coal trading platform is a very positive move for the country, said Kapil Mantri, head-corporate strategy at Jindal Steel & Power Ltd, adding that a lot depends on the finer details of such platform but this will definitely bring huge efficiencies, specially in terms of logistics cost.
“Coal exchange is must when we talk of real time power market and is a right step in evolution of coal market,” said Association of Power Producers director general Ashok Khurana. “However, exchange needs multiple sellers and buyers to prevent gaming. With commercial coal auction due to start, we may have a situation of multiple buyers in next 4-5 years. Before that the exchange can start with minimal operations, and substitute for spot auction platform. Coal offering on exchange, should be only after linkages contract are met fully—it should not be at their cost. If so, it would drive up the power prices.”
A top executive with a coal trading firm said countries across the world already have coal exchanges and it is a tested model. However, the government should let the market mature with large number of players to ensure obtaining right value for coal at the proposed market.