India plans to start its first coal exchange

India plans to start its first coal exchange – a coal trading platform which would possibly mark an end for the new Fuel Supply Agreements (FSA) regime of Coal India and make a huge leap towards opening up the sector completely to market forces.

India has decided to set up a coal trading platform, which will make a huge leap towards opening up the sector completely to market forces as India prepare for commercial coal mining auctions that will increase the number of coal sellers.

According to the proposal, the entire coal produced in this country will be traded on the ‘coal exchange,’ an online platform in which demand and supply make pricing transparent. The exchange is designed on the lines of commodity exchanges, power bourses or the proposed gas exchange.

This would possibly mark an end for the new Fuel Supply Agreements (FSA) regime of Coal India, where the state-owned miner signs coal supply contracts with consumers.

According to a senior government official, the Coal India will remain the dominant player in the industry, with its output target of one billion tonnes by 2024, and will be selling the incremental capacity at market prices.

Discussions in Process

According to sources, the discussions in the Ministry has already begun and a coal exchange will be established after the government has addressed all the related concerns.

While the coal consumers and traders welcomed the move, however, they said that the exchange should only commence after there are multiple buyers and sellers.

Meanwhile, on Thursday the ministry of coal is expected to begin commercial coal mining auctions for about 50 coal blocks.

Positive Industry Response

A coal trading platform is a very positive step for the country, says Kapil Mantri, Jindal Steel & Power Ltd’s head of corporate strategy, though he added that much would rely on the finer details of such platform, but it will certainly offer tremendous efficiencies, especially in the logistical cost.

A leader of a coal trading company said that countries all over the world already have coal exchanges and it is a proven model. However, with a large number of players, the government should allow the market to mature to ensure the right value for coal on the proposed market.