The government is likely to postpone the implementation of coal price pooling because of the strong opposition from consuming states who feel it would raise the cost of power generators and increase tariff for consumers.
Under price pooling mechanism, CIL would have subsidised the price of imported coal (which is 50% costlier now) by raising domestic coal prices and supplying full quantity of coal at uniform price to consumers. The pooling mechanism, being finalised at the instance of the Prime Minister’s Office (PMO), is meant to address coal shortage being faced by consumers and would be especially helpful to new power plants to cut the cost of fuel imports.
Coal imports are rising at above 20% (CAGR) while domestic production is growing at just 4%.
Sources in the coal ministry said states such as West Bengal and Andhra Pradesh are not very keen on the pooling mechanism. Some states have indicated that the proposal is not the best option to address the fuel shortage issues. Together, these two states take over 20 million tonne of coal annually from Coal India and their views can, therefore, be decisive.
“Price pooling cannot be introduced in isolation and has to get approval of all consuming sates before its roll-out. This is essential to keep the prices of coal low as per-tonne cross subsidy on its limited implementation could be very high,” said a CIL official. A coal ministry official also confirmed that given the scenario, pooling mechanism could be deferred for few years or shelved for now.
CIL, which is working on price pooling to be introduced in its new fuel supply agreement (FSA) with producers, has already issued letters to 27 independent power producers (IPPS) seeking their approval for the mechanism. “If there is a dissent, we will have to shelve the plan for now,” said the official.
A committee headed by the principal secretary to prime minister Pulok Chaterjee is also looking at the issue and is likely to discuss the matter with coal and power ministries at a meeting on October 10. Apart from pooling, the meeting is also likely to consider ways of making FSA more effective.
The government is looking at similar price pooling mechanism for the gas sector.
Under the FSA terms finalised by CIL, it will supply 80% of annual contracted quantity of coal to power producers. Out of this, 65% of coal will be provided from domestic sources and the balance 15% coal would be met through imports.
Under this mechanism to be implemented soon, imported coal would be supplied on a cost-plus basis and producers would have to place advance request for imports after paying money to CIL. “This mechanism is more feasible (than price pooling) and protects CIL from offering any subsidy to producers from its own pocket,” said the CIL official.
The government is considering various options to meet the demand supply mismatch in coal to protect the interest of consuming industries and facilitate investment in power steel and coal sectors that are stuck due to lack of clarity on fuel supply issues. As per planning commissions estimates, coal demand supply mismatch may reach over 200 million tonne by 2016-17.
Even this year, coal imports is likely to be in the region of 140 million tonne to meet the demand. “Pooling mechanism is good if it helps us to keep our overall fuel cost low. If CIL supplies us coal by either directly importing it or through MMTC/STC, the price of such coal under cost plus method should be lower than coal price which we get on our (direct) imports,” said a NTPC official.