In a move to adopt the best international practices, Coal India Limited (CIL) may benchmark its produce to gross calorific value (GCV) of coal, beginning January1. The move — which has the backing of the Union government — is expected to expand both the product as well as price range of offerings substantially. India is the only country among major producing nations which has yet to adopt GCV benchmarks.

According to sources, in a communication to the company in end-October, the Union Coal Ministry has strongly advocated switchover to the new system beginning 2012. The coal major on its part has also intimated the same to all mining subsidiaries.

Revenue neutral

CIL currently sells seven varieties of thermal coal (and limited quantities of coking coal), benchmarked against useful heat value (UHV). An Indian nomenclature developed in the 1970's, UHV defines energy (kilo calorie) in every kilogram of coal after discounting the moisture and ash content.

Confirming the development, a senior CIL official said that the entire exercise would be “revenue neutral” to the company as coal offered under each existing grades — classified by a wide UHV bandwidth 600 K.Cal/Kg to 1100 K.Cal/Kg — will be re-classified in a manner so that the average price remains the same.

For example, Eastern Coalfields, a CIL subsidiary, sells D-grade coal of 4200-4940 K.Cal/kg UHV to the power sector at a notified price of Rs 1040 a tonne. In the changed environment, ECL may reclassify the same coal in a number of varieties priced at higher or lower than Rs 1040 a tonne depending on the GCV content.

“The changeover to the GCV-based system will leave us with larger number of offerings, each classified by a narrower bandwidth of energy content. While this may increase the cost for some consumers linked to better mines, many others will end up paying less,” the official said adding that the overall cost of fuel would not be impacted.

Power sector objects

It may be mentioned that CIL had been advocating a changeover to GCV-based sales since 1998. Each such attempt – the latest being in 2008 – was faced with severe opposition from the power sector which anticipated a pricing motive behind the move.

“Considering the poor track record of CIL in delivering quality coal, we do not merely doubt the company's (plan) to implement the new system to the satisfaction of consumers; we also doubt the company's intent behind such move,” a senior official of a private sector power major told Business Line .

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