The days of cheap coal finally seem over for domestic user industries. Consumers, especially the power sector, should brace for an up to 21 per cent jump in prices this Plan period, thanks to the government’s proposal to pool imported and domestic coal prices. Also, the total cost of imports has been worked out to a staggering Rs 72,000 crore by 2017.
The ongoing fuel crunch for power plants because of constrained production from state-owned Coal India Ltd (CIL) has led to a massive spurt in costly imports. The Planning Commission had proposed the pooling mechanism, under which domestic and imported prices were to be averaged out to allow consumers to avail of uniform rates irrespective of the source.
To offset the higher prices of imported coal over the notified price of equivalent quality supplied by CIL, the differential cost of imported coal needs to be spread over the entire indigenous quantity supplied to power utilities. “Such a spreading of additional cost will result in an increase of domestic coal price to an extent of around eight per cent, 21 per cent, 16 per cent and seven per cent during the years 2012-13, 2013-14, 2014-15 and 2015-16, respectively,” CIL chairman S Narsing Rao said in a November 14 letter to the coal ministry.
Currently, the notified price of coal stands at Rs 1,682 per tonne. On the lower side of the price rise, a seven per cent increase would push up the price to Rs 1,799 per tonne. The average coal price will jump to Rs 2,035 per tonne, on the higher side of the 21 per cent price rise. This is part of the reworked pooling scheme formulated by CIL, jointly with the Central Electricity Authority (CEA). Rao, however, did not mention the resulting rise in power prices in his letter.
The CIL chairman also clarified that the projections had been made assuming the prices of imported coal, ocean freight, exchange values, port charges and statutory levies and duties remain at the same level. “Any change in any of these factors would have simultaneous repercussions on domestic coal price,” he said.
Prime Minister Manmohan Singh’s principal secretary, Pulok Chatterjee, had on October 10 convened a meeting to discuss issues related to the power and coal sectors.
Chatterjee had asked CIL and CEA to prepare a reworked pooling strategy, to have one notified CIL price for each grade of coal supplied to consumers.
CIL would have to import 120 million tonnes during the current Plan period to meet its supply commitment of 80 per cent of annual contracted quantity to power utilities. However, this quantity would increase in case CIL fails to achieve the “extremely challenging targets” set, requiring a compound annual growth rate of eight per cent.
CIL’s production had grown at a CAGR of 3.8 per cent in eleventh Plan period.