CIL hikes coal prices to keep pace with rising costs

Electricity consumers are in for another price shock. Beginning May 30, Coal India increased prices of lower grade coal (G6 to G17) by 13 to 19 per cent.

This is the first broad-scale price revision by the company after three years.

Prices of the most consumed varieties of G11 to G13 moved up by ₹100-150 a tonne, translating into a roughly eight paise a unit impact at the distribution end.

The consumers of Western coalfields will pay 20 per cent higher price and Rajmahal coal (G11-13 band) is costlier by ₹450 a tonne.

Prices of higher grade fuel have been reduced by 2 per cent to 29 per cent in the face of competition from imported fuel.

Consumers in steel, cement and other sectors in the open market and paying 35 per cent more than the power sector, will face a mild 3.47 per cent increase in coal prices.

According to the company, prices were revised to keep pace with rising costs and in anticipation of the forthcoming wage impact.

The current agreement that saw a 34 per cent hike in salaries will end in July.

Considering that the Narendra Modi government increased the clean energy cess (renamed clean environment cess) by ₹300 a tonne since 2015 and hiked the royalty from 14 per cent to 18 per cent; electricity generation cost has gone up by upwards of 25 paise a unit in the last one year.

The impact on the distribution cost is approximately 30 paise a unit.

The rise is significant considering round the clock average of electricity tariff in open market is around 2.50 a unit this summer.

On Sunday, the maximum price at IEX was ₹2.99 (Western region) a unit. Round the clock average varied between ₹1.81 a unit and ₹2.05 a unit in all regions.

“Generation utilities will face serious hardship as the market is unwilling to buy costlier power,” Subhasri Chaudhuri, Secretary-General, Coal Consumers’ Association of India, told BusinessLine .

Interestingly, CIL expects the price revision will boost its revenues by less than ₹4,000 crore at the current production level of 534 million tonnes (FY16).

The future growth in volumes is under question due to lukewarm demand growth for coal this year.

But this is not enough to meet the cost of wage increase.

If wages increase at the last year’s level of 34 per cent, CIL’s salary cost will go up by an estimated ₹8,000 crore a year leaving a wide revenue gap of ₹4,000 crore or more.

The price increase, however, will fill the cash boxes of both the Centre and the coal-bearing States on account of higher earnings from mineral cess and royalty.

West Bengal will stand to gain more as it uses substantial quantities of Ranigunj coal that witnessed a price cut on Monday.

COMMENT NOW