Independent regulatory body mooted for coal pricing

New Delhi, April 11 | Updated: Apr 12 2006, 05:30am hrs
Coal pricing in the country may soon come under the purview of an independent regulatory body if the government accepts the recommendations of the Expert Committee on Coal Sector Reforms.

The committee, which submitted Part A of its report to the coal ministry recently, has favoured a regulatory mechanism for coal pricing, especially for the power sector that consumes about 80% of total coal produced in the country.

Top sources in the coal ministry told FE that the ministry was evaluating the recommendations of the committee and may take a policy decision after its entire report is submitted.

Coal pricing, at present, is fixed by the coal ministry in consultation with coal PSUs Coal India Limited (CIL) and Singareni Collieries Company Ltd (SCCL). The prices are determined on the basis of costs incurred in coal production from different mines in a coal company plus a reasonable amount of profit.

The expert committee has said that until the government sets up a regulatory mechanism for coal price determination, the ministry of coal can fix the price on the basis of periodic price studies.

On price determination, the committee considered three options before arriving at the conclusion that current market realities favour regulation of coal price only for the power sector.

For others (cement, steel, brick kiln etc), it has suggested that 60% of the requirements of consumers with a minimum annual demand of one lakh tonne can be given under a fuel supply and transport agreement (FSTA) involving the coal supplier, coal consumer and the transporter at a price indexed to the e-auction price. For other consumers, the committee has suggested that their coal needs may be met through traders or imports or e-auction.

For the sake of evolving a pricing mechanism, the committee has divided the consumers into two categories - Class A and Class B - with the former being the power sector consumers and latter being other coal consumers.

Interestingly, while the committee has favoured 60% linkage for Class B consumers, the Planning Commission in its earlier report has favoured 80% linkage for them.

The committee also considered two other pricing options - a complete deregulation of coal prices and import parity pricing. However, these did not find favour under the current market situation.

For the success of its pricing formula, the committee has also suggested an increase in coal allocation under e-auction route. It has said that 10% of total domestic coal production should be brought under e-auction in the first year, 20% in the third year and a further increase to 25-30% in the long run.

It has also suggested that power utilities should be asked to set up coastal generating stations along western coast and south Tamil Nadu on imported coal, to prevent e-auction from creating constraints on domestic supplies.