Coal exchange in works to put end to grey market - Quoted in the Financial Chronicle

The government proposes to set up a coal exchange for buying and selling of coal with option for both spot as well as futures transactions. This will enable government to monitor and streamline coal transactions apart from right price discovery for ‘black gold’ and put an end to grey market for coal.

All end-users of coal and captive mine operators may have to be registered on the platform. In India, coal is primary source of energy accounting to 52.4 per cent of demand. Rest 41.6 per cent is sourced from oil and natural gas. According to planning commission projections made in integrated energy policy, 2006, coal is estimated to meet more than 50 per cent of primary comme­rcial energy need by 2032.

Finance ministry has accepted recommendation of Committee on Allocation of Natural Resources (CANR) chaired by former finance secretary Ashok Chawla. A committee of secretaries headed by cabinet secretary Ajit Kumar Seth will vet this proposal before CIL is asked to set up a trading platform.

“The platform can register all end-users such that sales to any registered user through the platform would automatically satisfy end-use requirement. In particular, all genuine users seeking linkage can register on the platform,” said the panel.

About 75-77 per cent of coal is consumed by power sector. Steel, cement, fertilisers, bricks manufacturing, textile and chemical industry consume the rest.
“It is estimated that by end of the eleventh plan, coal demand in India will be about 713 million tonnes, while availability would be about 630 million tonnes. Gap of 83 million tonnes will be met through imports,” said DK Aggarwal, CMD of Mumbai-based SMC Investments and Advisors.
According to panel’s recommendations, imported coal could be offered through the coal transaction platform. Further, all miners — captive or standalone — can transact coal through the new exchange. Further, e-auctions of coal done presently would also be linked to the new platform.
“In terms of imports, it may not be a feasible mechanism. Coal imports are need-based. Making it man­datory for a particular platform to be used may not be practical,” said Dipesh Dipu, director at consultancy firm Deloitte Touche Tohmatsu India.
“No company would be willing to sell raw coal from its captive mine. The company would produce less coal or may preserve it for future,” said Bhavesh Cha­uhan, analyst at Mumbai-based Angel Broking.
According to Crisil Research, there are about 250 firms that have been allocated coal mines. “Negligible amount of excess coal is available. Also, if there is any excess coal it has to be sold to Coal India subsidiaries at notified prices,” said Crisil.
Meanwhile, steel ministry has pointed that traders and agents should not be allowed to participate in these e-auctions or trading on coal exchange to prevent making profits.