Revised pricing policy on cards for thermal coal

Written by fe Bureau | New Delhi | Updated: Feb 28 2013, 10:38am hrs
After deregulating diesel prices, the government may now propose to rationalise the price of thermal coal, used as fuel for power generation. If implemented, the proposed policy move could lead to a significant hike in domestic coal prices for generating stations and force them to increase tariff.

On Tuesday, the railways had announced its plan to adopt fuel price-linked freight charges, which would lead to a 5-6% jump in coal transportation costs.

The Economic Survey 2012-13 tabled in Parliament on Wednesday stressed on the need for adopting market-based pricing for all energy products.

This reflects an ongoing government policy where it is gradually decontrolling prices of petroleum products.

After petrol, the government last month decided on the economic pricing for diesel by increasing its retail price gradually, by 45-50 paise a month.

The basic argument in the Economic Survey is: Aligning domestic energy prices with global prices, especially when large imports are involved, may be an ideal option as misalignment could pose both micro and macro-economic problems."

The government is also considering giving Coal India ( CIL) the go-ahead to align its pricing for thermal coal in line with the international benchmark. In January last year, CIL moved over to the gross calorific value-based (GCV) pricing for its coal production. It resulted in significant hikes in coal prices, drawing a strong opposition from power producers who insisted that CIL first put in place a mechanism to ensure promised coal quality before it shifted to the GCV pricing system. Later, CIL was asked by the coal ministry to put on hold the implementation of a new methodology. CIL is still charging its coal price on the basis of unit heat value ( UHV) methodology.

But now it seems the government is veering to the idea that bringing domestic coal price in line with the international market is the only credible option before it. The revision in the GCV is likely to increase the prices of domestic coal to some extent, but this is a desirable adjustment because domestic thermal coal, adjusted for quality differences, continues to be underpriced, the Economic Survey document said.

The railway has decided to charge fuel price-linked freight charges from April 1 to pass on the increase in diesel prices to cargo shippers after the recent deregulation of the transportation fuel by the cabinet. The government has also justified its move to revise the price of the domestic natural gas following recommendations by the Rangarajan committee.