Auction of Coal Linkages - PowerPoint Presentation

1. Auction of Coal Linkagesfor Non-Regulated Sector(Tranche IV)COAL INDIA LIMITEDSALES & MARKETING DIVISION

2. Policy GuidelinesPolicy issued by MoC on 15.02.2016All allocations of linkages/LoAs for non-regulated sector shall be auction based henceforthNo premature termination of existing FSAsNo renewal of existing FSAs which are maturing in 2015-16 onwards

3. Policy GuidelinesTenure of FSAs : up to 15 yearsThe extant coal supply arrangements may continue till commencement of coal supply under the auction processExisting FSAs with CPSEs may continue to be renewed on expiryIf CPSEs require linkages over and above the existing linkages, they may participate in auction of linkages

4. Separate quantities shall be earmarked for sub-sectors of non-regulated sectorThe sub-sectors could be: Cement, Steel/Sponge Iron, Aluminium and Others [excluding Fertilizer (Urea) sector], including their CPPs etc.The sub-sectors shall compete within themselvesThe Ministry of Coal may review the sub-sectors as and when requiredAuctions shall be conducted by CIL/SCCLPolicy Guidelines

5. There shall be provision for third party sampling of coal suppliedIn the first tranche, the quantity put up for auction may be the sum ofquantity available from expiry of FSAs of non-regulated sector [except CPSEs and Fertilizer (Urea)] in 2015-16 onwards25% of incremental CIL/SCCL production during 2015-16 over 2014-15Based on experience of first tranche, operational issues such as quantities, sectoral allocations, sub-sectoral earmarking, auction methodology and other operational details may be reviewedPolicy Guidelines

6. Broad Guidelines for MethodologyCIL will allocate/earmark coal from suitable source (rail/road mode) within a subsidiary, as deemed fitCIL shall chalk out annual or 6 monthly auction calendarThe methodology for the auction shall be non-discriminatory Ascending Clock AuctionThere will be an initial reserve price and auction will be conducted on this reserve priceIf bids are received for quantity less than offered quantity, then all bidders will get coal at reserve price

7. If bids are received for quantity greater than offered quantity, then the price is increased by the systemThe process continues till the demand-supply equilibrium is establishedThe price increment shall be determined based on a transparent computerized system without any manual interferenceMaximum bid quantity by a particular bidder shall not exceed the normative requirement of the End Use Plant (subject to adjustment for existing linkages)Broad Guidelines for Methodology

8. Illustration for Calculation of Eligible RequirementTotal Coal Requirement of the EUP (in G10)100 tExisting FSA-1 (deemed to be G10) 25 t Existing FSA-2 (deemed to be G10) 25 t Coal Block (converted to G10)20 tEligible Requirement before Tranche I (in G10)100 – (25 + 25 + 20) = 30 tBooking in Tranche I (converted to G10)10 t Booking in Tranche III (converted to G10)10 tFSA-1 lapses on or before 30.09.201825 tEligible Requirement before Tranche IV (in G10)30 – (10 + 10) + 25 = 35 t

9. EarlierLinkage quantity was 75% of normative quantityConsumers did not have freedom to choose source of supply as per their requirementTransportation cost varied as per allocation of sourcesThird Party Sampling provision was available only to consumers with ACQ of 4 LT and aboveBenefits to consumers over existing NCDP/ FSA provisionsNowLinkage quantity will be 100% of normative quantityConsumers have freedom to choose source of supply as per their requirementTransportation cost can be controlled as sources will be known beforehandThird Party Sampling provision is available to all consumers

10. Auction Process: Overview

11. Activities on MSTC portal

12. Auction Process: DetailsAfter registration, the Bidder enters the RFP information (capacity, plant address etc.) and uploads the necessary documents (power of attorney, undertaking etc.) on MSTC portalThe reserve price of the auction is equal to the notified price for non-regulated sectorDuring the auction, the Bidder quotes quantity and the system increases price in every iteration till the demand from bidders comes into equilibrium with the offered quantity (supply)Every round (iteration) lasts for 8 minutes except the first round which is for 15 minIf demand supply ratio is over 300%, the increment is Rs. 100If demand supply ratio is between 200% and 300%, increment is Rs. 50

13. Auction Process: DetailsIf demand supply ratio is between 125% and 200%, increment is Rs. 25If demand supply ratio is between 100% and 125%, increment is Rs. 10If demand supply ratio goes below 100%, the auction stops and the system compares the last two roundsThe round with higher revenue becomes the winning roundAfter the auction of each Lot, Letter of Intent is issued to Successful Bidder(s), and upon submission of required documents and Performance Security, FSA is executed with them

14. IllustrationReserve Price: Rs. 1000 / TQuantity Offered: 1 MTBidding Round 1 Premium over reserve priceRs. 0 / TBids received for1.8 MTBidding Round 2 Premium over reserve priceRs. 25 / TBids received for1.2 MTBidding Round 3 Premium over reserve priceRs. 35 / TBids received for1.1 MTBidding Round 4 Premium over reserve priceRs. 45 / TBids received for0.9 MT (Auction Stops)Revenue in Rounds 3 and 4 is compared (1035 x 1.0 = 1035 & 1045 x 0.9 = 940.5)Result : Round 3 is winning round; 1 MT quantity is awarded to successful bidders on pro-rata basis @ Rs. 35 / T premium over CIL Reserve Price

15. Main Changes in Tranche IV over previous TranchesModalities for change of mode from Rail to Road have been incorporated in the Model FSAAnnexure II (Format of Undertaking) has been modified in order to include the plant details including coal based capacity and total capacity.RFP documents have been included in Part A (mandatory documents for signing FSA) under Annexure IXIn case of CTO, Factory License & Boiler Certificate that have expired recently, FSA can be executed and/or coal supply continued for a maximum of 3 months after the date of expiry of the CTO/ Factory License/ Boiler Certificate, if the bidder has submitted proof of renewal application.The timeline for execution of FSA after the submission of required documents and Performance Security by the bidders has been increased from 30 days to 60 days, based on past experience of Tranche I to III.

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