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Apparently it was a welcome move on the part of Coal India to adopt the internationally accepted gross calorific value (GCV) based sales, and reclassify the product portfolio in narrower bandwidths of heat value. Ideally, it should help the producer to tap every step on the value chain as well as reduce the inconsistency in quality of supplies to the consumer.
In the end, it raised some fundamental questions on the pricing methodology of Indian coal. To put it straight: should Indian consumers buy coal at a price which is comparable to landed cost of imported coal?
Restricted supply
In most of the producing nations there are many producers and coal is sold at a market determined price which is directly related to global demand-supply conditions. Unfortunately for the Indian consumer there is no such option. India's prime energy source is sold by a monopoly, Coal India Ltd. Naturally there is little or no scope of a price discovery on the supply side.
To make it worse, CIL's production was stagnant at 430 million tonne in the last fiscal and chances are high that it would not post a production growth even in the current fiscal.
Most importantly, a closer call at CIL prices leave sufficient grounds to doubt if Indians actually end up paying up higher price for majority of its domestic coal of 5,500 kilo calorie GCV; than that in other producing nations.
Higher than global price
CIL has priced the GCV 5,200-5,500 kcal coal at Rs 2750, or $52 a tonne at the current exchange, for the non regulated sector and Rs 2,520 or $ 39 a tonne for power, fertilizer and defence.
A like-to-like comparison (with GCV 5300 k cal coal) indicate that apart from power and fertilizer the rest of Indian industry is paying 15 per cent higher price for CIL coal than its competitors in Indonesia running on indigenous coal.
Actually, it is paying only 13 per cent less than the landed cost of coal in India.
The regulated power and fertilizer sector, though blessed with a softer rate, are also paying only 15 per cent less price than the domestic market price of the same quality of coal in Indonesia.
No such comparison is possible on lower GCV coal since they are not internationally traded.
However, chances are high that poorer the quality of coal, which are more in demand, CIL prices are either at par or higher than the domestic price in other producing nations.
Discount on quality coal
On the contrary, CIL is giving a discount on international prices on higher quality of coal which are available in very limited qualities in the country. A like-to-like analysis with 6500 kcal South African coal shows that the CIL coal priced at Rs 4,460 a tonne ($85) is selling at nearly 20 per cent discount than the market price in Indonesia.
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