PMO turns down price hike request by Coal India

PMO turns down price hike request by Coal India

New Delhi: Avoiding potentially big trickle-down price hikes for consumers, Prime Minister Manmohan Singh’s office has turned down a move to increase coal prices by Coal India Ltd (CIL), a holding company under the ministry of coal that contributes 85% of India’s coal production and is generally free to fix its price. The last price revision by CIL took place in June 2004.

“Coal India had proposed a hike of 10% in the coal prices. Even the NTPC Ltd had agreed to the hike. However, the move was stalled at the behest of the Prime Minister’s Office (PMO)," said a senior coal ministry official who did not wish to be identified because of the sensitive nature of the issue.

“The PMO has rejected CIL’s demand and directed that there will be no price hike for the time being," confirmed a senior CIL official, who also did not wish to be identified.

A spokesperson for the PMO would only say: “We neither confirm nor deny" the move.

By deciding against the hike, the Prime Minister—who is also the minister for coal—appears to have managed to contain a cascading effect of the proposed CIL move, as any increase in input costs would have forced NTPC and other consumers of coal to pass on the price increase.

But, according to some experts, coal prices globally have been rising since 2004, when CIL last hiked its price.

Thermal coal prices, which ranged between $30 and $35 (Rs1,218-1,421) per tonne between 1986 and 2003, are now trading in the range of $60-65 per tonne.

A comparable quality of coal in India would cost about $45 per tonne.

Meanwhile, the increase in the demand for coal required for power projects has been putting upward pressure not only on domestic coal prices but also on coal imports.

It is expected that India’s coal imports will double to 40 million tonnes (mt) per annum by 2012.

“While there may be reason in CIL’s eagerness to raise prices in light of rising input costs... the increase in energy prices, in particular, may have an adverse impact on the economy that seems (to be) firing on all cylinders," says Dipesh Dipu, a manager with accounting firm PricewaterhouseCoopers.

However, Dipu makes a case for overhaul of the coal pricing regime. “Pricing of coal requires structural changes, from being grade-wise (useful-heat-value based) to internationally well-established gross-calorific-value based. The current system of grading of coal has a large range of quality parameters for each class and does not ensure consistent quality of supply to the consumers. Hence, it is time to overhaul the system rather than increase prices across the board, incrementally or otherwise," he says.

Coal continues to remain the mainstay of the power sector with over 54% of the total installed power generation capacity in the country, as of December, in coal-fired thermal units.

With around 67% of total power generation currently based on coal, the power sector is the major consumer of coal in the country, absorbing nearly 78% of the country’s total coal production.

NTPC is the country’s largest thermal power generating company, contributing close to 30% of the total power generation of the country during 2006-07.

The Union government holds 89.5% of NTPC’s shares. NTPC alone has an annual coal requirement of 100 mt of coal and is the biggest customer of Coal India.