Coal India Ltd has shifted to gross calorific value (GCV)-based pricing for coal from January 1 in line with the international practice, in a move that is expected to increase its revenues by 15%. However, bulk coal consumers like power, cement and steel are likely to feel the heat. Buyers do not have any real choice as prices in the international coal markets are ruling high.
These industries may find it difficult to pass on the increase in input cost to consumers given the slack market demand. CIL has been pricing its coal based on useful heat value (UHV) till now.
However, coal sector experts welcomed the move, saying it would create a closer pricing linkage between imported and domestic coal. ?There are other benefits as well. Earlier, the source of the coal was very important, now there would be question about the quality as the third party inspection can be done about the grades at different points. Also, a price parity was a must, which this system would definitely bring in?, Kameswara Rao of PricewaterhouseCoopers, said.
According to industry experts, though the exact impact of the new pricing system may be difficult to assess at this stage, as per the initial calculation the price hike in the new system would be the least for the power consumers at around 2-3%. For non-power consumers the impact could be as high as 19%.
Under the UHV method, coal was categorised into seven grades in the decreasing order of quality (from A to G), whereas, in the new system GCV, the same is categorised into 17 types of coal. The pricing of each category depends on its gross calorific value. The impact on each user would be different depending on grade of the coal.
The change in pricing comes as a double whammy for power and non-power companies which are facing a severe shortage of coal at their plants. The coal ministry, however, has ruled out any increase in prices even with the new pricing system and a hike in excise duty on fossil fuel dispatches. ?As of now the rise in the prices of coal is not under consideration?, coal minister Sriprakash Jaiswal said recently.
His comment is in contradiction to Coal India chairman N C Jha?s who has already made it clear that any additional burden on the company due to the hike in stowing tax would be passed on to the consumer.
Stowing duty is levied on rehabilitation, stowing and infrastructure development of abandoned mines. The coal ministry has hiked this levy from R10 a tonne to R20 a tonne. As per the Cabinet approval, this duty can be hiked up to R50 per tonne if need be.
Coal India accounts for 80% of coal supply in the country. The company switched over to the new price mechanism from January 1, 2012. The change in pricing would help CIL offset some of its wage revision burden.
