Maharatna major Coal India Ltd’s (CIL) decision to goahead with modified fuel supply agreement (FSA) without price pooling was triggered by concerns raised by various power producers, a top company official said.
The Kolkata-based firm’s board had cleared the final draft of revised FSAs on Monday with modifications on penalty slab and doing away with moratorium. However, the FSA draft was cleared for power firms to sign with no price pooling, so that imported coal will be supplied on a cost-plus model. The main reservation put forward by the critics of price pooling is that the price of domestic coal will increase by 6-7 per cent, if it gets pooled with import prices.
“We kept the matter on hold because a lot of power producers had reservations regarding the model. Now, the board has asked for opinion from the Central Electricity Authority (CEA) and power producers. Will take a decision on this, only after their response,” a CIL director told Business Standard.
The firm had earlier said that if there is no price pooling, FSA trigger level will be like 65% domestic coal and 15% imported at cost-plus model, provided the power producers are willing to take it.
According to the price pooling model prepared by CIL, all power producers will have to share the import cost, while in cost-plus model only a particular consumer will be impacted.
Experts bat for pooling
Urging CIL to go for pooling, NC Jha, former chairman and managing director of CIL said, “It should go for price pooling, even though there domestic coal prices will rise by 6-7 per cent. As per the current model cleared by the board, all customers are not treated equally. Why should a foreign coal user pay a higher price, while the domestic coal users pay lower price for coal with the same calorific value?”
Jha states that both price pooling or cost plus models will have no impact on CIL’s finances. The world’s largest coal producer is planning to import about 20 million tonne of coal this financial year. “If prices are pooled, there will be an impact on power prices. But the availability of coal also matters,” adds Anup Bhargava, Managing Director, India Power Corporation and Director, DPSC Ltd.
Analysts too bat for pooling of coal prices. “As power prices may also increase, there will be political implications for such a move. CIL might have put the decision on hold because of that,” said Bhavesh Chauhan, an analyst with Angel Broking.
Early this year, the Prime Minister’s office had told that CIL should go for price pooling, for which the coal ministry had responded that the move is not only going to increase the domestic prices, but all the buyers will have to pay more.