EconomyGS3

Coal India Shifts Distribution from Nomination to Auction Model

PIB·2026-09-25· Read original

"Coal India Shifts Distribution from Nomination to Auction Model"

Prelims Facts

  • •The Coal Mines (Special Provisions) Act, 2015 made auction the sole legal method of allocating coal blocks after the Supreme Court cancelled 204 of 218 blocks.
  • •The SHAKTI policy, introduced in 2017 and revised in 2025, governs coal-linkage allocation for the power sector.
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Key Terms

Fuel Supply Agreement (FSA)

long-term contract between CIL and power plants guaranteeing coal supply.

SHAKTI policy

auction-linked framework for allotting coal linkages to the power sector.

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Study Note

BackgroundCore Concept

Background

Coal remains the backbone of India's energy economy, meeting close to 55 per cent of the country's primary energy needs and fuelling over 70 per cent of electricity generation. India holds one of the world's largest coal reserve bases and ranks as the second largest producer and consumer of coal globally. Coal India Limited (CIL), formed after the nationalisation of coal mining in the early 1970s, operates under the Ministry of Coal and remains the world's largest coal-producing company.

For decades, coal blocks meant for captive use by steel, cement, and power companies were allotted through an administrative, discretionary process known as the nomination route. This system broke down when the Supreme Court of India cancelled 204 of the 218 coal blocks allotted between 1993 and 2012, holding the allocation process arbitrary and lacking objective criteria. Parliament's response was the Coal Mines (Special Provisions) Act, 2015, which made competitive auction the sole legal method for allocating coal blocks going forward, replacing discretion with a transparent bidding process. It is worth being precise here: coal blocks today are allocated through auction, not through any lottery system, since general awareness sometimes conflates the two.

Alongside block allocation, a parallel and equally important transformation has taken place in how already-mined coal is distributed to consumers. This distribution side, historically dominated by long-term nomination-based linkages, has been steadily reformed through auctions, digital interfaces and revised commercial terms over the past decade.

The Topic Explained

CIL's current distribution architecture serves different consumer segments through distinct channels. Fuel Supply Agreements (FSAs), backed by the SHAKTI policy introduced in 2017 and revised in 2025, remain the principal route for long-term coal supply to the power sector, allocated through a transparent auction-linked mechanism rather than administrative nomination. For non-power consumers such as cement, steel, sponge iron and captive power units, linkage auctions introduced in 2016 created a competitive bidding route for long-term supply. Short-term and spot requirements, including those of traders and exporters, are met through e-auctions open to all consumers on a common platform, which has also helped a genuine spot market for coal develop in India. Smaller consumers, particularly MSMEs requiring less than 10,000 tonnes of coal a year, are served through State-Nominated Agencies (SNAs) rather than having to compete in large auctions. …

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Related PYQs

2019GS1 Prelims

Consider the following statements:

1.Coal sector was nationalized by the Government of India under Indira Gandhi's tenure.

2.Currently, coal blocks are allocated on lottery basis.

3.India, till recent times, imported coal to meet the shortages of domestic supply, but now India is self-sufficient in coal production.

Which of the statements given above is/are correct?

A1 only
B2 and 3 only
C3 only
D1, 2 and 3
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2021GS3 Mains

"Investment in infrastructure is essential for more rapid and inclusive economic growth." Discuss in the light of India's experience.

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Practice MCQs

Economymedium

With reference to coal block allocation in India, consider the following statements:

1.The Supreme Court of India cancelled a majority of coal blocks allocated between 1993 and 2012 for lack of transparent criteria.

2.The Coal Mines (Special Provisions) Act, 2015 mandates competitive auction as the method for allocating coal blocks.

3.Coal blocks in India are currently allocated on a lottery basis.

Which of the statements given above is/are correct?

A1 and 2 only
B2 and 3 only
C1 and 3 only
D1, 2 and 3
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Economymedium

Match the following coal distribution mechanisms with the consumer segment they primarily serve:

List I (Mechanism)

A.Fuel Supply Agreements / SHAKTI

B.Linkage Auctions

C.e-Auctions

D.State-Nominated Agencies (SNA)

List II (Consumer Segment)

1.Power sector

2.Non-power industries (cement, steel, sponge iron)

3.Short-term/spot buyers including traders and exporters

4.MSMEs requiring less than 10,000 tonnes annually

Select the correct answer using the code given below:

AA-1, B-2, C-3, D-4
BA-2, B-1, C-4, D-3
CA-1, B-3, C-2, D-4
DA-3, B-2, C-1, D-4
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Economymedium

Consider the following statements regarding coal distribution mechanisms in India:

1.The SHAKTI policy governs allocation of coal linkages to non-power industries.

2.Linkage auctions were introduced for non-power consumers such as cement and steel.

3.Fuel Supply Agreements (FSAs) are the primary mechanism for long-term coal supply to the power sector.

Which of the statements given above is/are correct?

A1 and 2 only
B2 and 3 only
C1 and 3 only
D1, 2 and 3
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Economyeasy

Despite having large domestic coal reserves, India continues to import coal mainly because of which of the following reasons?

ADomestic coal is entirely of non-coking type unsuitable for the steel industry, and coking coal must be imported
BGovernment policy requires saving domestic reserves entirely for future use
CIndia has no operational coal mines of its own
DCoal import is mandated under an international trade agreement
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