Coal India will switch to new pricing mechanism from Jan

Pratim Ranjan Bose Kolkata | Updated on December 26, 2011


Coal India Ltd is believed to be gearing up to introduce the internationally-accepted gross calorific value (GCV)-based pricing mechanism from January 1, according to sources. The switchover was advocated by the Union Coal Ministry in October this year.

The new system will replace the existing seven useful heat value (UHV)-based grades by a wider range of offerings each classified by a narrow bandwidth of GCV. 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.

Revenue impact

The CIL top management previously announced that the new product classification will be revenue neutral, as coal offered under each existing grades will be reclassified in a manner so that the average price remains the same. Market sources, however, suggest that the new system may have a thin “revenue impact” to the coal major.

Since existing grades are differentiated by a wide bandwidth of 600-1,100 kilo calories a kg, consumers – including power sector – linked to better mines under each such grade may feel the pinch. However, the cost of fuel to power sector as a whole should not be impacted substantially.

Sources suggest that a firm proposal for switchover to GCV-based pricing system with effect from January 1 may be placed before the board of directors of the company in end of next week.

Power sector factor

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 ability 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.

Published on December 25, 2011

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