Faced with slowdown in operational cash flows and mounting arrears from power distribution companies impacted by the pandemic, state-miner, Coal India Ltd. (CIL) has revamped its e-auction model, which ensures immediate cash realizations.
The coal miner has also decided to increase volume offerings through spot e-auctions buoyed by response during the first half of the current fiscal year.
Under the revamped e-auction model, the reserve price for spot sales based on bids received would be fixed 10% higher than its notified price.
The focus on pushing up the reserve price for auctions and offering higher volumes for sales through this route was to mitigate CIL’s mounting arrears from large coal buyers among power distribution companies that was creating acute cash flow problems.
The company said arrears from power distribution companies had mounted to $3 billion as of July, up from $2.23 billion in April.
It might be noted that CIL’s e-auctions are primarily held for non-power companies with principal buyers putting in bids from traders, and non-power companies in cement, steel and sponge iron, which tend to get higher premiums for assured supplies and immediate cash payment against deliveries.
During the first five months of fiscal year 2020-2021 (April-August), CIL allocated 13.86 million tons for sales through spot e-auction for non-power companies, an increase of 49% over volumes offered during corresponding period of previous year.
According to a CIL official, bookings at these e-auctions held over the past five months were “high,” but did not fetch any premiums as the miner reduced the reserve price premium to nil, or in other words, set the reserve price at same level as its “notified price” to help pandemic-hit industries facing liquidity crisis to lift stocks of dry fuel.
However, considering the cash flow crisis of the miner, overall revival in key industrial coal consuming sectors, CIL reckons that a higher reserve price ensures a premium on sales through forthcoming auctions, the official said.
E-auction was introduced by CIL to offer access to buyers of coal who do not have the wherewithal to source the dry fuel through institutional mechanism like fuel supply agreements. The purpose of the e-auction is to provide equal opportunity to all intending buyers for purchasing coal through a single window service, according to CIL.