Coal India (CIL) has not been able to introduce a new price for its newly formulated fuel supply agreements (FSAs) as the change in the pricing mechanism has effectively increased average coal prices by over 60% across the board. The increase has translated into mounting dues from coal sales as power companies are not paying the balance that has come from switching from useful heat value- (UHV) based pricing to gross calorific value- (GCV) based pricing.

Power companies are not paying the balance saying there has been no official price revision since February 2011. The shift from UHV to GCV was supposed to be revenue-neutral.

A CIL spokesperson said that the FSA for April 2012 to March 2015 has been formulated on the basis of the price made effective from January 2012, following the shift from UHV-based pricing to GCV-based pricing. The first phase of FSA for the period ? March 2009 to April 2012 ? was also brought under the new pricing regime. So, in that way, the newly formulated FSA didn?t have a new price. But the power sector, especially NTPC, was denying paying GCV prices, for which the new FSAs are stuck.

Damodar Valley Corporation (DVC) chairman and managing director RN Sen told FE that the power sector has demanded third-party sampling both at the mine and the power plant ends to determine the correct GCV. Earlier, the entire power sector was paying UHV prices in spite of CIL sending bills based on GCV prices. But the regulator recently intervened and said that the power sector should pay for the GCV it realises at the plant end. A third party would hold joint sampling both at the mine and the plant ends to find out the GCV that CIL claimed it was supplying and the GCV a power plant was actually realising.

The price would be fixed according to the GCV determined by the third party. The third party would be appointed via the tender route, Sen said, adding since DVC was entering into new FSAs with CIL subsidiaries, it had to concede paying GCV prices.

DVC has already signed FSAs with Bharat Coking Coal, Mahanadi Coalfields and Central Coalfields. It is still holding its FSA with Eastern Coalfields due to a disagreement on prices. NTPC, which is supposed to sign as many as 13 FSAs, is yet to inform on the timing , CIL chairman and managing director S Narsing Rao said.

He said CIL intended to start the third-party sampling by August-September and this exercise would be on a par with international standards. ?All power plants would pay for coal based on third-party sampling,? Rao said.

With the shift from UHV to GCV, the minimum coal price increase for regulated sectors (power, defence and fertiliser) was 4%, while the maximum overall increase was 219%. Coal prices went up by an average of 60.71% across the board.

On the UHV basis, A grade or the ?best quality? coal was available at R4,100 per tonne at the pithead. At present, the best-quality coal has been determined to have a calorific value of above 7,000 kilo calorie per kg (kcal/kg) and its price under GCV has been fixed at R5,194 per tonne, 27% higher than the earlier price. Moreover, the highest quality of coal on the basis of GCV has been divided into two more sub-bands: from 7,000 kcal/kg to 6,700 kcal/kg and from 6,700 kcal/kg to 6,400kcal/kg with prices of each sub-band fixed at R4,971 per tonne and R4,728 per tonne (at the pithead in Eastern Coalfields? mines) up by 21% and 15%, respectively.

Under UHV pricing, the entire range was available at one price.

Moreover, sub-bands also altered the grades and UHV prices are no more comparable with GCV prices. For example, B grade of coal, which was priced at R3,990 per tonne increased to R4,728 per tonne since its GCV was determined to be 6,400 or 6, 800 kcal/kg.

CIL followed the 2007 prices in implementing its first phase of FSA. Later, it revised prices of A and B grades of coal in 2011, which was also made effective for supplies of coal under the first phase of FSA. GCV-based pricing was also made effective in the first phase of FSA.