Power tariff set to shoot up as Coal India raises prices

CIL to raise coal prices by 6.3%. The move aimed at raising revenue margins

With Coal India (CIL) planning to raise its revenue margin by an additional Rs 3,234 crore by increasing the average coal prices by 6.29 per cent, power tariffs in plants across the country are set to rise. To push sales of higher-grade coal and to price them at par with international trends, CIL reduced prices between Rs 50 and Rs 1,420 for the G1-G5 grades and - to make up for the loss on account of this - it increased prices in the lower G6-G17 grades between Rs 70 and Rs 300.

Although prices have been reduced for the higher grades, the power sector in the country mostly uses the lower G8-G13 band where prices have soared by 13.60-18.03 per cent.

“If input costs go up as a result of the price increase in coal, a price rise in power might happen,” said an NTPC official, adding that the fine print of the likeliness of tariff increase still needed to be worked out and looked into.

The power plants will be facing the heat for the third time now with the new prices becoming effective as their input costs are likely to rise.

According to the Coal Consumers' Association of India (CCAI), coal-consuming sectors such as power have been impacted because of a hike in royalty from 14 per cent to 18.5 per cent, which has come following the mandatory contribution to the District Mineral Foundation Trust, to the National Mining Exploration Trust (NMET), and towards the clean energy cess - which rose from Rs 200 a tonne to Rs 400 a tonne.

As on April 30 this year, a total Rs 168.38 crore has been collected in NMET from the states. “NMET is passed over to coal consumers. This has resulted in input costs going up. Furthermore, when prices of imported coal have seen a sharp decline, Coal India could have reduced prices in the lower grades as well,” said Subhasri Chaudhuri, secretary-general of CCAI.

While CCAI is of the view that the power tariff might shoot up by seven per cent, industry analysts are predicting a rise of 20 paise per unit of power for the consumer.

“This hike in price of thermal coal will have an average impact of 12-15 paise a unit at the generating stations and by approximately 20 paise per unit for end consumers,” said Debasish Mishra, partner, Deloitte Touche Tohmatsu India.

Coal India officials say that states that consume higher grade coal - such as West Bengal, Jharkhand, Bihar and Madhya Pradesh - and companies using such coal like Damodar Valley Corporation are likely to benefit from this price revision. “For the power sector in West Bengal, there will be a relief of 26 paise per unit after this price rationalisation,” said a senior Coal India official.

West Bengal alone uses 56 per cent of the 45-million tonne higher grade of coal, which the fossil fuel miner digs out annually.

According to the official cited above, since CIL's coal remains cheaper than the imported variants of similar calorific values, the move will also help both coastal and hinterland power plants to reduce their dependency on imported coal and resort to using coal from the state-owned miner.

“Inland waterways are being developed, which will help in ferrying of coal at reduced prices. Also, three crucial railway links will help in cutting down on logistics costs,\" said the official.

After the price revisal, CIL's coal having 6,500 gross calorific value (GCV) is 11 per cent cheaper than the imported coal from South Africa or Indonesia, while the 5,000 GCV indigenous coal has become 41.5 per cent cheaper.

“Coal consumers can buy higher grade coal and mix it with the lower grades to keep input costs under control,\" the official added.