A diluted version of coal price-pooling mechanism could come up for Cabinet approval in the next two weeks, with the power and coal ministries accommodating the views of some state utilities and discoms over the proposed move.

The government is weighing all options, including the phased launch of the much-delayed pooling mechanism to address uncertainty around the reform initiative that aims to ensure uninterrupted fuel supply to power sector companies albeit at a slightly higher price than now.

?We are taking the proposal on coal price pooling to the Cabinet in next two weeks. There are few options before us on how to implement the new system and we are willing to consider all of them,? minister of state for power Jyotiratidya Scindia said at the Express Group?s Idea Exchange programme.

The coal ministry had earlier proposed the limited application policy for price pooling in a note forwarded to the Cabinet Committee on Economic Affairs (CCEA). The CCEA had asked the coal and power ministries to finalise a workable formula on pooling before it can decide on the issue.

Scindia said that ministry is considering whether to implement the pooling mechanism for all existing power projects that have come up prior to April 2009 or restrict its application to projects that have come up or are coming up after march 2009. Also on the agenda is the option of making coastal plants run on imported coal while domestic coal linkage to such plants is diverted to power plants closer to coal-producing areas. The fourth option, the minister said, is to blend coal based on calorific value of domestic and imported varieties that suit specific requirements of a power projects.

?Our power plants are configured to use different quantities of blended coal ranging from 10-40%. A limited application of coal pooling could be looked at if it makes economic sense,? the minister said, when asked whether pooling is feasible given the opposition from various state utilities and discoms.

Barring a handful of entities such as Aravali Power Co, China Light and Power, Rajasthan Rajya Vidyut Utpada Nigam, Maharashtra State Power Generation Co and Uttar Pradesh Rajya Vidyut Utpadan Nigam, other state utilities and PSUs such as DVC and NTPC have opposed the proposed mechanism. Utilities fear that pooling would further deteriorate their financial health and make coal expensive under the new route as there is no gurantee that CIL would meet even 65% of required fuel from domestic sources.

The facts have also been noted in a recent report on pooling of price of coal by Central Electricity Authority (CEA). The CEA?s report would be used by coal ministry and the PMO to finalse the pooling scheme.

During interaction with Coal India Ltd, earlier, also the utilities opposed pooling.

?The government should desist from introducing pooling in a hurry. We are far from reaching any level of consensus on coal price pooling. The mechanism cannot be introduced in isolation as nod from all consuming states was essential to keep the prices of coal low. The per-tonne cross subsidy on its limited implementation could be very high,? said an official of Coal India asking not to be named.

As per present pricing of coal in the domestic and overseas markets, increase price of the fuel under pooling mechanism cfould be about Rs 100 a tonne (5%) or more.

Some of the state electricity boards utilities opposed to pooling are from the states of Haryana, West Bengal, Andhra Pradesh, Orissa, Chhattisgarh, Tamil Nadu, Pubjab.

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%. This indicates that coal demand-supply mismatch would only widen in coming years putting further pressure on CIL to ensure fuel supply for its consumers.

Under the revised terms of fuel supply agreement (FSA) 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. CEA expects that pooling of coal prices would be requires in fiscal 2013-14 and 2014-15 in view of CIL’s inability to meet even 80% of annual contracted quantity (ACQ) of coal for new generating units commissioned/ to be commissioned from April 1, 2009 to March 31, 2015.

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.

Diluted version to fuel mechanism

* Coal price pooling mechanism to come up before CCEA in two weeks

* A diluted version of pooling is expected to be implemented initially

* The rollout could be in phases with power projects in states agreeing for the new mechanism getting pooled prices coal first

* Power ministry also weighing whether to implement price pooling for pre or

post-2009 power plants

* Nationwide pooling may increase domestic coal prices by 5% of R100 per tonne