Jan 2 (Reuters) - State-run miner Coal India (COAL.NS), opens new tab on Friday opened up its e-auctions to foreign buyers from neighbours Bangladesh, Bhutan and Nepal amid a decline in local demand for power generation.

Shares of Coal India extended gains to trade more than 6% higher at 426 rupees, their highest in more than a year. They were up 4.5% before the announcement.

India's coal-based power generation has dropped in seven of the past 12 months as renewable energy penetration has picked up. Coal India's supplies to consumers declined, opens new tab 2.2% on-year in the April to December period.

New Delhi approved exports of surplus coal from power plants in December.

India's neighbouring countries were buying coal via traders. In the year through November, India exported about 1.54 million tonnes of coal, mainly to Bangladesh, Nepal and Bhutan, as per data from coal trading firm I-Energy Natural Resources.

"Tepid domestic coal demand this year has hit coal e-auction premiums for Coal India, so this move to level the playing field for foreign buyers will also help the company boost margins and reverse the trend of posting lower offtake volumes," said Rupesh Sankhe, a research analyst with Elara Securities.

The countries have been buying Coal India supply through traders, said Vasudev Pamnani, director at I-Energy Natural Resources. Participating in auctions would replace that demand and not add new volume, he said.

Inland logistics and port costs make India less competitive than Indonesia, which supplies to Bangladesh with better infrastructure and lower costs, Pamnani added.