New Delhi:Planning Commission member for power B.K. Chaturvedi has suggested an increase in domestic coal prices as they are significantly below international levels.
Currently, domestic coal is priced 65% cheaper than international coal. Any correction in prices will benefit state-owned Coal India Ltd, the largest coal miner in the country.
Out of sync: A mine owned by Singareni Collieries Co. Ltd at Godavarikhani, Andhra Pradesh. The price differential between international and domestic coal is about 65% currently. Noah Seelam / AFP
Chaturvedi, the chief author of the much-debated report on oil subsidies, has suggested a similar correction in petroleum product prices as well.
Speaking at the India Electricity 2008 conference in New Delhi, Chaturvedi stressed the need for policy measures to increase domestic prices as an attempt to encourage coal imports. He also stressed the need to develop a mechanism to enable companies to set up coal mining capacity overseas.
“There is a limitation in the domestic coal production capacity. It cannot meet all the demand,” he said.
Coal India chairman Partha Bhattacharyya agreed to the view that there were capacity limitations on domestic coal mining. “It is a fact that coal requirement have increased at a rate which is unprecedented. While the (government’s) Integrated Energy Policy (on production and use of different forms of energy) had envisaged coal demand to grow by 6.5% per annum, it has grown by 20% per annum,” he said.
Indian coal (3,500 kilo calorie per kg) is priced at around Rs2,000 per tonne. Till 2002-03, domestic coal prices were in sync with international prices. However, domestic prices have risen only by 2.4% per annum over the last four years, leading to a price differential of 30% between the international and domestic prices in May 2007, which rose to 65% in May 2008.
“There is a huge scope for increasing prices, but we would not like to do it at a time when the government is trying to fight inflation. However, the domestic prices will have to gradually increase in correlation with an increase in our washed-coal capacity,” Bhattacharyya said.
Coal India mines 380 million tonnes (mt) of coal and plans to increase this to 405mt by 2009-10. It plans to increase the capacity of more-efficient and less-polluting washed coal from around 8% of the total capacity now to 35% in three years and 70% by the end of the 12th Plan period (2012-17).
“Under present circumstances, (a) completely market-oriented pricing mechanism may not help, although the eventual aim of the government should be to move towards such a regime in (the) long term,” said Dipesh Dipu, principal consultant, mining, at audit firm PricewaterhouseCoopers.
“For the short to medium term, efforts should be made to facilitate greater participation from private sector and enhance production. With a sufficiently large number of sellers and buyers in the market, and demand and supply nearly kept matching, open market pricing can be implemented,” he said. “For that to shape up, a coal regulator can be a facilitator.”
Meanwhile, Coal India wants its overseas coal venture, Coal Videsh Ltd, to be treated along similar lines as International Coal Ventures Ltd, where an empowered committee of secretaries is to take expeditious decisions for making acquisitions. In an intensely competitive environment, quick decision-making helps make deals successful. A similar practice is followed for companies such as the ONGC Videsh Ltd unit of Oil and Natural Gas Corp. Ltd.
Coal India is also yet to get the navratna status which will help its board to take investment decisions up to Rs1,000 crore without seeking government approval.
A public sector company that is large, profitable and has been granted a certain level of autonomy in management is called a navratna.