| Date: |
13-06-2011 |
| Subject: |
Indonesia’s New Coal Pricing Policy Set To Hit Indian Power Firms |
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Indonesia may soon cease to be the favourite destination for coal-buying Indian power firms. The country has aligned its coal pricing method with global practice, which is bound to make the natural resource dearer by Rs 1,500 a tonne for Indian power utilities. This, in turn, could translate into higher electricity prices for domestic consumers.
Until now, there was no regulation by the Indonesian government on coal pricing.
The new policy comes at a time when domestic utilities are battling coal shortage and are dependent on Indonesian for importing nearly 50 per cent (40 MT) of the country’s total fuel needs. Amid projections that India would import nearly 60 MT coal from the island nation this year, the new regulation, effective September, is bound to be a dampener. Tata Power and Essar are among firms to be affected by the move.
The pricing system would have an in-built mechanism of an adjustment price to cover the transportation costs for barging, surveyor costs, transshipment costs and insurance costs. Ending the cushion for the importers on spot coal contracts (less than 12 months), Indonesia government has been notified that price for spot sale “must be based on the reference price for the month when the coal is being delivered.” Since coal prices have been usually volatile, its price in a particular month could be high, which could dissuade buyers from going for bigger offtake.
But the importers are likely to be hit hard by alteration in the condition for term contracts (long-term). The Indonesian Directorate General of Minerals, Coal & Geothermal says though a fixed price can be agreed in this based on the average coal reference price in the past three months prior to coal sales agreement, “however such price is to be adjusted once every 12 months.”
Since coal from Indonesia is slated to become dearer by Rs 1,500 a tonne from September, companies could possibly raise their power prices to offset the higher procurement cost.
Source : indianexpress.com
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