Finance, coal, power ministries can’t break ice on price pooling.

Pooled pricing of coal that shifts a huge fuel risk to Coal India (CIL) from power producers is stuck, as no final decision is forthcoming on the proposal.

Finance minister P Chidambaram, coal minister Sriprakash Jaiswal and power minister Jyotiraditya Scindia met on Thursday on the matter, but couldn’t make much headway.

Opposition to pooled pricing comes not only from the coal ministry and state-run Coal India, but the power ministry and NTPC also have reservations.

CIL has pushed for a cost-plus formula for imported coal, leaving the pricing of domestic coal it produces to be determined under the existing norms cleared by an inter-ministerial group.

CIL is willing to take on the burden of importing coal on behalf of power companies, but it is not willing to bear the price risk that needs to be a ‘pass- through’ along with 2-3 per cent handling charges.

Another stumbling block comes now from NTPC, which already has an on-going tiff with CIL on the quality of coal, pricing and dues payable to the latter. NTPC owes Rs 2,000 crore to CIL. While CIL has been regulating coal supplies to NTPC, the latter has cited quality issues and links payments to gross calorific value of the fuel.

NTPC wants to import coal on its own or through third parties and not depend entirely on CIL or its subsidiaries for domestic, imported and blended coal.

If the cabinet committee on economic affairs accepts the coal ministry and CIL’s ‘cost plus’ formula and de-link it from domestic coal prices, then the pooled pricing model falls. The committee is to meet on April 16 to take a call.

P Chidambaram has been favourable towards the ‘pooled pricing model’ as a ‘sustainable preposition’. At the same time, he is inclined to accommodate the views of CIL, NTPC, coal and power ministries the on spread of imported coal price risks.

The inter-ministerial pa­nel that reports to a ministerial panel led by Chida­mbaram feels that this year only 56 per cent of coal needs can be met domestically and the remaining 44 per cent will have to be imported on cost-plus basis by CIL and other state trading companies.

The panel has also recommended blending imported and domestic coal in the ratio of 38:62 instead of 50:50. It estimates that the availability of domestic coal may increase to 70 per cent gradually from 62 per cent of the projected demand over next four years.

The move to import low gross calorific value coal from countries like Indonesia has also been put on hold, given the technical constraints and combustion risks in long-haul transport and other handling issues.

The government may not allow any coal below 5,000 kilocalorie value for either coastal or inland power stations. The coal ministry and CIL have asked power companies to come up with options on the ‘cost plus formula’ or otherwise.

The government proposes to engage Indonesia which wants to restrict coal exports from next March. Currently, coastal power stations source low calorie value coal from Indonesia.

Meanwhile, the railways and steel ministries say that while coal for power companies is important, their own requirements cannot be sidestepped. The railway ministry has taken the position that coal imports need to be staggered as transport during the monsoon will be impacted. A proper plan for movement of both domestic and imported coal is yet to be worked out.

At its meeting the cabinet committee on economic affairs will also consider the possible increase in electricity charges by at least 12 – 13 paise per kwh in case the pricing mechanism is implemented.

The UPA and its allies in states are wary of increasing power rates ahead of elections in Karnataka on May 3, four other states in November this year and to the Lok Sabha in 2014.

West Bengal, Andhra Pradesh and Uttar Pradesh do not want an increase in coal prices for their own power plants as a result of pooled pricing. Many senior officials too are wary of pooled pricing which they say will increase the prices by Rs 172-192 a tonne for NTPC.

Not sure of the fallout, the coal ministry has also suggested using pooled pricing on an experimental basis for two years, extendable thereafter the results are positive.

The biggest thing going against pooled pricing is that it will benefit private companies setting up new power projects and negatively impact running power plants of central and state companies.


Source : mydigitalfc.com