1. Auction of Coal Linkages for Non-Regulated Sector (Tranche IV)
COAL INDIA LIMITED
SALES & MARKETING DIVISION

2. Policy Guidelines Policy issued by MoC on 15.02.2016
All allocations of linkages/LoAs for non-regulated sector shall be auction based henceforth
No premature termination of existing FSAs
No renewal of existing FSAs which are maturing in onwards

3. Policy Guidelines Tenure of FSAs : up to 15 years
The extant coal supply arrangements may continue till commencement of coal supply under the auction process
Existing FSAs with CPSEs may continue to be renewed on expiry
If CPSEs require linkages over and above the existing linkages, they may participate in auction of linkages

4. Policy Guidelines
Separate quantities shall be earmarked for sub-sectors of non-regulated sector
The 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 themselves
The Ministry of Coal may review the sub-sectors as and when required
Auctions shall be conducted by CIL/SCCL

5. Policy Guidelines
There shall be provision for third party sampling of coal supplied
In the first tranche, the quantity put up for auction may be the sum of
quantity available from expiry of FSAs of non-regulated sector [except CPSEs and Fertilizer (Urea)] in onwards
25% of incremental CIL/SCCL production during over
Based on experience of first tranche, operational issues such as quantities, sectoral allocations, sub-sectoral earmarking, auction methodology and other operational details may be reviewed

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

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

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

9. Benefits to consumers over existing NCDP/ FSA provisions
Earlier
Linkage quantity was 75% of normative quantity
Consumers did not have freedom to choose source of supply as per their requirement
Transportation cost varied as per allocation of sources
Third Party Sampling provision was available only to consumers with ACQ of 4 LT and above
Now
Linkage quantity will be 100% of normative quantity
Consumers have freedom to choose source of supply as per their requirement
Transportation cost can be controlled as sources will be known beforehand
Third Party Sampling provision is available to all consumers

10. Auction Process: Overview
Notice Inviting Application
Scheme Document & Model FSA upload on MSTC portal
Registration by consumers on MSTC portal
Request for Proposal (RFP) by consumers on MSTC portal
Pre Bid meeting
Source-wise offer upload on MSTC portal
Submission of Bid Security by the consumers online
Conduction of auction
Issuance of Letter of Intent
Submission of documents and Performance Security
Signing of FSA
Start of coal supply

11. Activities on MSTC portal
Registration
Basic documents like PAN, VAT etc.
Request for Proposal (RFP)
System calculates Normative Coal Requirement
Non-Discriminatory Ascending Clock Auction Process
Increase in Premium till Demand Supply equilibrium is established

12. Auction Process: Details
After registration, the Bidder enters the RFP information (capacity, plant address etc.) and uploads the necessary documents (power of attorney, undertaking etc.) on MSTC portal
The reserve price of the auction is equal to the notified price for non- regulated sector
During 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 min
If demand supply ratio is over 300%, the increment is Rs. 100
If demand supply ratio is between 200% and 300%, increment is Rs. 50

13. Auction Process: Details
If demand supply ratio is between 125% and 200%, increment is Rs. 25
If demand supply ratio is between 100% and 125%, increment is Rs. 10
If demand supply ratio goes below 100%, the auction stops and the system compares the last two rounds
The round with higher revenue becomes the winning round
After 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. Illustration
Reserve Price: Rs / T
Quantity Offered: 1 MT
Bidding Round 1
Premium over reserve price
Rs. 0 / T
Bids received for
1.8 MT
Bidding Round 2
Rs. 25 / T
1.2 MT
Bidding Round 3
Rs. 35 / T
1.1 MT
Bidding Round 4
Rs. 45 / T
0.9 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 Rs. 35 / T premium over CIL Reserve Price

15. Main Changes in Tranche IV over previous Tranches
Modalities for change of mode from Rail to Road have been incorporated in the Model FSA
Annexure 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 IX
In 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.

16. Thank You !