Electricity tariffs may spiral, as the Union Government has revived its plan to pool the price of imported coal with the domestic fuel.

The new proposal, if implemented, is set to bypass the resistance from State government-owned utilities as well as the board of directors of Coal India Ltd against subsidising imported fuel, to be used largely by the privately-run coastal capacities.

Previous proposal

According to the old proposal, CIL was expected to offer imported coal at 25 per cent subsidy to the new capacities (commissioned after March 2009) suffering from shortage of domestic production.

The subsidy amount was proposed to be recovered from the existing buyers of domestic fuel — largely the Central and State government-owned utilities. It was estimated that the subsidy on imported fuel would require existing buyers pay an additional Rs 100 a tonne enhancing electricity tariff by around 10 paise a unit.

Tweak notified price

In a shift of strategy, CIL is now advised to import the requisite quantities blend it with comparable domestic fuel and increase the notified price of respective grades to the weighted average levels.

According to sources, this should also help the company ensure profitability and avoid objections from the board as well as shareholders (such as TCI of UK). Since CIL is empowered to revise the notified price of coal, there is no need to either amend the fuel supply pacts in operation or seek consent from the existing buyers.

Huge impact

The new proposal, however, may have a bigger impact on existing consumers of cheap, low-quality domestic fuel. For example, if CIL imports 4,200 kilo calorie of Indonesian fuel priced at Rs 2,700 a tonne, the average consumers of similar domestic variety (price at Rs 900 a tonne) like the West Bengal state utility will be hit harder compared to privately run CESC Ltd due to difference in consumption pattern.


(This article was published on November 12, 2012)
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