The Planning Commission will push for more reforms in the coal sector with the shift from useful heat value (UHV) based pricing to gross calorific value (GCV) based pricing being the first step towards it.
Planning Commission?s principal adviser Pronab Sen told FE that the Planning Commission plans to bring about consistency in policy matters for all forms of energy. Energy pricing has to be made subsidy free and competitive, while the energy market should also be free of monopoly under a regulatory environment.
The Plan panel?s document for an integrated energy policy points out that policies applicable to different energy sources need to be consistent with each other. Energy market should be competitive wherever possible for economic efficiency and for promoting optimal investment in the energy sector.
The document further states that a competitive market alone will not ensure efficiency in this area because of negative external environment associated with some fuel, potential supply risk and also the scope of exploitation of temporary shortages. Appropriate fiscal policies and independent regulation can take care of anti competitive market behaviour.
According to Sen, shifting from UHV to GCV was required to integrate the Indian coal sector with the international one and this was a must since the other forms of energy pricing, mainly oil, was linked with the global market. ?Without this policies for different energy sources would not be consistent with each other,? Sen said.
He said for Coal India (CIL) it was an opportune moment to shift from UHV to GCV since demands were high and consumers would be ready to pay more for coal in a high demand scenario. He ruled out any possibility of the economy further slowing down for higher coal prices.
?I don?t have any demand side problem, I have supply side problem,? Sen said adding, ? even if there is a little bit of decrease in demand it would not contribute to a further slowdown of the economy. CIL will be eased of supply pressures if the demand goes down,? Sen said.
CIL targeted to produce 520 million tonne of coal at the terminal year (2012) of the 11th plan matching with the demand projection. But it would end up producing 447 mt a shortfall of 73 mt. So market was in a condition to absorb the price shock, which came out of a transformation from UHV to GCV.
Coal prices in some mines have gone up to an extend of 95%. Coal of New Rajnagar mines, under South Eastern Coalfields Ltd, which was priced at R 2,103 per tonne as C and D grades of coal, has been currently priced at
R4,097 per tonne with the GCV of the same coal found to be at 5,790 kilo calorie a kg. But A grade of coal prices in SECL?s, Churcha mines have increased by only 8% ? from R4,841 per tonne to R5,227 with the GCV of the same coal discovered at 6,369 kilo calorie a kg.
Sen said if the price increase creates a demand side problem, then we would have to look at it otherwise the coal sector should move up to its next stage of reforms. Although he did not say what would be the next step of reforms, he made clear that this shift has been a step forward towards achieving fiscal consolidation.
