The Government of India announced that it is ready to throw open the gates for commercial sellers to enter the coal mining sector. It is a historic decision since coal has been one of the heavily regulated industries in India, dominated by PSU giant, Coal India Ltd. Even during the era of privatisation, the government declined to relinquish its control over coal production and sales. Coming from that standpoint, it is a mammoth decision and transformative for the economy.
Details about the development
The government has decided to set up new power bourses in the line of commodity exchanges to allow coal trading on an open online platform. India already has speciality exchanges for agricultural and other commodities, coal exchange will add to the list. It will be an open platform guided by market supply and demand factors, and India’s entire coal production will be available for trading. The proposed coal trading platform will add transparency to the pricing system and reduce the market dominance of Coal India, which is currently monopolising Indian market.
With this, the new Fuel Supply Agreements (FSA) regime will come to an end. Currently, customers need to sign a contract with Coal India Ltd. to receive supply from the miner. “The latest proposition will allow Coal India to sell incremental capacity at market price,” – added one government official.
It will add more vitality to the market. With more numbers of buyers and sellers into the system, coal exchange will help with the decentralisation of power.
Both consumers and traders have hailed the move; but also insisted that the platform will need complete acceptance from other players to be successful.
“Coal exchange is must when we talk of real-time power market and is a right step in the evolution of coal market,” said Ashok Khurana, DG Association of Power Producers. Other players like Jindal Steel & Power Ltd. has also welcomed the announcement. In his statement Kapil Mantri, head-corporate strategy at Jindal said that he is feeling positive about the move but also mentioned that a lot will depend upon the efficacy of the platform in managing logistics costs and other factors.
Other countries already have coal trading exchange. It will allow the Indian market to leverage real-time pricing potential. With the barriers gone, the coal sector will become more competitive and transparent. Initially, the government has decided to go ahead with the sale of 50 blocks. Apart from Coal India and Singareni Collieries, state PSUs will also get coal blocks for sale.
Coal India will continue to be the dominant player in the market for now, with its target to produce 1 billion tonnes of coal by 2024. But there will be more players joining in the next 4 to 5 years. Discussions on issues like the size of the platform, regulations, fate of the current FSA agreements will also take place in due course.
Government is currently trying to lower India’s avoidable coal import volume to zero by 2023-24. After slightly increasing by 3.2 percent to 242.97 MT in 2019-20, India’s coal import went down 20 percent in May to 18.93 MT. Coal Ministry has urged state governments to avoid importing coal and asked Coal India to replace at least 100 MT of imported coal through domestic production.