CIL may cut e-auction quota to 7%

India's federal government has instructed Coal India Ltd. to reduce the amount of coal it sells via electronic auctions to 7% of its output by March 2017, from 10% now, and increase the amount of coal available for local power producers, a senior government official said.

"Coal India has been informally told [by the coal ministry] that it should progressively cut its e-auction quota in next five years," the official, who declined to be named, told Dow Jones Newswires recently.

The coal thus diverted will be made available to power plants at notified prices, the official said, implying that the world's largest coal company will take a hit to its profits as its e-auctions fetch 80%-100% more than annual supply contracts.

The move will benefit coal-fired power plants that are facing an acute shortage.

Coal India spokesman S. Vijay Sagar declined to comment.

Top bureaucrats met earlier to discuss increasing coal supply to the power sector, after some industrialists met the prime minister in January seeking a solution. India currently faces a shortage of at least 114 million tons of coal.

Last week, the Prime Minister's Office said that Coal India has been asked to sign long-term agreements to supply coal to operational and upcoming power projects with a total generation capacity of more than 50 gigawatts. It has also been asked to import coal if need be.

Coal India said in October that it plans to sell up to 50 million tons via e-auctions this fiscal year ending March, out of a targeted production of 440 million tons.

Coal India, which meets about 80% of the country's coal needs, has been facing hurdles in its attempts to increase output and meet rising demand, such as delays in environmental clearances, problems in land acquisition and frequent strikes.