Coal price pooling likely only for power plants after March 2009

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SummaryFaced with stiff opposition from power utilities over the Centre’s move to introduce coal price pooling which could increase price of the fuel by R100 a tonne or more, the coal ministry may restrict the mechanism only to power projects getting commissioned after March 2009.

should not be implemented as a permanent measure,” said a coal ministry official, confirming that the ministry is in favour of limited application of the pooling mechanism.

A CIL official, however, said that pooling cannot be implemented in isolation and its purpose would be defeated if selective implementation results in sharp increase in the fuel price for projects coming after March 2009. “Complete implementation of pooling (for projects coming before and after March 2009) would have resulted in an average coal price rise of just R100 per tonne or about average 25-30 paise hike in electricity tariff. But this will be much higher if limited pooling is allowed.”

Under the proposed price pooling mechanism, CIL aims to recover the additional cost of imported coal by raising domestic coal prices and supplying full quantity of coal at uniform price to consumers.

The pooling mechanism has already been opposed by a majority of state distribution utilities as they fear that it would result in a sharp escalation in a project’s variable cost and, thereby, result in higher power tariffs.

The government has mooted the idea of price pooling for coal given the widening gap between domestic demand and supply of coal, which has given rise to the possibility of default by several power projects on their electricity supply contracts. It is meant to help CIL comply with its commitment to meet at least 80% of power companies’ coal requirement.

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