BackCoal India to raise prices in some select blocks
Coal India to raise prices in some select blocks
PremiumGreen signal: Coal India CMD S. Narsing Rao. The firm had already received its board’s nod for revising the price and a final decision on the extent of hike will be taken in a ‘couple of days’, Rao sa
Kolkata: Coal India Ltd (CIL) is to increase the price of coal 5-15% in selected blocks at subsidiaries Eastern Coalfields Ltd (ECL) and Western Coalfields Ltd (WCL), which may lead to a surge in power tariffs in regions where electricity is produced from the fuel supplied by them.
Coal India, which produces more than 80% of India’s coal, had already received its board’s nod for revising the price and a final decision on the extent of hike will be taken in a “couple of days", Rao said. The price adjustment could result in an additional revenue of ₹ 200-400 crore every quarter to Coal India, depending upon the extent of the increase, a company official said. He didn’t want to be named.
Coal India had to roll back prices in January under pressure from customers, who argued that the new gross calorific value method boosted them 5-20%.
Even after the rollback in January, prices were 2-3% higher, according to recent reports by analysts at equity research and broking firm CLSA Asia-Pacific Markets.
The Rajmahal coalfields of ECL and a few blocks of WCL may see a price adjustment soon, according to Rao. “Prices in these blocks have declined by 5-15% after shifting to GCV and we are only adjusting this now," Rao said.
NTPC Ltd, which takes all the coal produced in Rajmahal, will “pass on" the increase to customers—the state electricity boards in West Bengal, Bihar and other eastern states, said Arup Roy Choudhury, chairman and managing director, NTPC Ltd.
“Coal India is trying to make up for the lower realization of coal from the Rajmahal block, which is inferior in quality," Roy Choudhury said.
NTPC uses Rajmahal’s coal for its power stations at Farakka (West Bengal) and Kahalgaon (Bihar). “All the states that take power from these stations could see a hike in power tariff," Roy Choudhury said.
WCL, which supplies 80% of its coal to power generating companies, caters to the electricity requirements of states such as Karnataka, Maharashtra and Madhya Pradesh, Rao said.
Although NTPC can pass on the cost increase to state electricity boards, they in turn can only raise tariffs after getting approval from the respective electricity regulators.
There is a direct correlation between the price of coal and electricity, both of which have grown slowly in India due to political pressure, said Arvind Mahajan, executive director at consulting and audit firm KPMG. “While Coal India and NTPC are both within their rights to raise prices based on respective cost evaluations, a separate coal regulator, as envisaged by the Centre, would make pricing issues more transparent," he said.
Coal India and NTPC have locked horns over signing fuel supply agreements (FSAs) for new power projects. While 15 out of the 49 eligible power producers have already signed the agreement and “most others are going to follow suit", according to an official from the miner’s marketing department, NTPC has strongly opposed the GCV methodology and the clauses in the new FSA.
The officer didn’t want to be named.
The FSA is skewed in favour of Coal India, according to its critics. The penalty for not meeting the trigger level, that is 80% of the committed supply, has been kept at 0.01% of the value of the shortfall, applicable after three years. It has also shielded itself against any possible shortfall by expanding the scope of the FSA force majeure clause, which protects CIL against breakdown of equipment, failure of contractors to deploy machinery, shortage of explosives and even power cuts.
“We are willing to accept the low penalty level if all other newly introduced lopsided riders are removed," Roy Choudhury said.
Coal India also needs to equip itself with modern techniques of evaluating coal grades under the GCV method before the FSAs are signed between the two public sector companies, he said.
manish.b@livemint.com
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