The government is weighing a new coal pricing dispensation to help Coal
India (CIL) recover the extra cost of imported coal it might have to
give power plants to comply with the fuel supply agreement (FSA). The
agreement means Coal India must guarantee supply of at least 80% of fuel
required by these plants.
Government sources said a committee of secretaries led by
Pulok Chatterjee, principal secretary to the Prime Minister, has been
mandated to evolve a pricing dispensation where power companies will
have to bear the extra cost of imported coal to the extent of difference
in the quality of imported and domestic coal.
The quality of imported coal is much superior to domestic coal.
For example, the ash content in domestic coal can be as high as 40%,
compared with 10% in imported coal. The gross calorific value (GCV) of
domestic coal is 3,000-3,500 Kcal/kg while that of imported coal is
5,000-7,000 Kcal/kg.
CIL will be allowed to recover the balance of the extra cost of
imported coal by increasing overall coal price. In other words, the
proposed pricing regime will allow CIL to supply imported coal to power
plants without having to bear the extra cost.
Industry experts differ over the merit of the move. “Rather than a
committee deciding on commercial issues, a coal regulator should be
appointed as early as possible,” said Dilipkumar Jena, senior consultant
and knowledge manager (mining), PwC. On the other hand, the association
of power producers (APP), a body of private power developers welcomed
the move. “The increase in price of coal due to imports would need to
spread over the entire quantity of domestic production to keep the power
cost manageable,” said director-general Ashok Khurana. The government
came out with a proposal to set up a coal regulator in 2008 but is yet
to deliver on the promise.
The government favours Coal India importing coal through state
trading agency MMTC rather than on its own, since it wants the coal
monopoly to focus on its primary mandate of production.
India’s coal import bill is projected to rise fast in coming
years as the country undertakes implementation of ambitious capacity
addition plans in the power sector while domestic coal production
stagnates. It imported 40 million tonnes of thermal coal (valued at $3.2
billion) only in 2010-11. But this could go up to 250 million tonnes
($30 billion) by 2016-17, according to the International Energy Agency.
The secretaries panel was set up in February after industrialists
including Ratan Tata and Anil Ambani met Manmohan Singh too seek his
intervention to tackle the fuel crisis in the power sector. The
committee backed appointing MMTC as the nodal agency for importing coal
because it has been importing coal for state electricity boards (SEBs)
for several years. The SEBs specify quantity and quality of coal to the
canalising agency. MMTC follows the Central Vigilance Commission’s
public procurement guidelines which mandate international tendering and
award of contract to the lowest bidder, making the procedure quite
transparent. This route also saves time.
After initial resistance from its board, Coal India signed FSAs
with power companies for supplying at least 80% of the annually
contracted quantity for 20 years as per the PMO’s directive. But the
penalty quantum, which is payable by Coal India in case of short supply,
has been reduced from 10% to 0.01% of the value of shortfall.
As per an estimate, Coal India must import 20-30 million tonnes
of coal in the current year if it has to meet its contractual
commitment. The Coal India board reduced the penalty amount after the public
sector company was issued a Presidential decree to ensure it signed FSAs
with power companies. The decree came after the company’s board
rejected a proposal to comply with the PMO’s directive.
Source: Financial Express
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