creates a fundamental difference in quality of domestic and imported coal. For any power producer, coal of a particular GCV with variation of +/- 10 per cent is very different from another variety of same GCV with variation of +/-2 per cent. This partly explains the lower price of CIL coal. CIL’s plan to set up numerous washeries is aimed at securing price convergence with imported coal legitimately. It is this initiative of CIL that caught the fancy of institutional investors worldwide leading to unprecedented success of its IPO. Finally, GCV parity shall lead to undue increase in price of domestic coal. Already a few states have raised their voice in this regard.
What is the way forward?
Fortunately, a solution exists that can address the problem of the power producers and also mitigate concerns of the stakeholders. The notified price for higher grades of coal from underground mines of CIL is based on a small discount to import parity price. Being produced only in underground mines the quality of this coal is consistent.
Working out the notified price of imported coal by using the GCV and notified price of these grades as benchmark shall lead to somewhat higher notified prices for imported coal but that will stand to better reason. The rationale would be even better if CIL is allowed to restrict imports to coal of GCV similar to these higher grades.
Would the power producers benefit from price pooling?
Yes. Notifying a price for imported coal by CIL will help the power producer in claiming ‘pass through’ for price variation more easily as is the case with domestic coal. This by itself may allow significant power capacities already set up to generate at much higher capacities in a viable manner. It may also make financial closure and bank financing easier for upcoming power projects.
Undoubtedly, selling imported coal on a notified price by CIL should be implemented at least to the extent of its FSA commitment.