Cabinet gives in-principle nod to coal price pooling

The Union Cabinet today gave an in-principle approval to a crucial proposal to implement pooling of domestic and international coal prices. This would make the costly imports of key power and steel-making raw materials viable. The Cabinet Committee on Economic Affairs (CCEA) finalised the blueprint of the controversial pooling mechanism in its meeting today but deferred a final decision.

“The in-principle decision has been taken. There is some data that has to be put into these principles,” Manish Tewari, minister of state (independent charge) for information & broadcasting, said after the meeting. “The structure for the decision has been put in place and the coal and power ministries would come back with specific details. Basic principles and parameters have been identified. The CCEA would again deliberate on the issue,” he added.

The ongoing fuel crunch for power plants against the backdrop of constrained production from state-owned miner, Coal India Ltd (CIL), has led to a spurt in costly coal imports. The Planning Commission had proposed the pooling mechanism under which, domestic and imported prices of coal were to be averaged out to allow consumers avail uniform rates irrespective of the fuel source.

A major hurdle in implementing the pooling mechanism is huge protest from state governments. They argue that pooling will lead to cross-subsidising private companies’ generation costs by increasing coal costs for the public sector companies. Also, asking CIL to import coal in bulk could lead to cartelisation jacking up costs for Indian plants. The New Coal Distribution Policy (NCDP), 2007, mandates CIL to meet the entire coal demand of the domestic industry, even if that means resorting to imports.

The government had last year asked CIL to supply at least 85 per cent annual contracted quantity (ACQ) of power plants commissioned after March 2009. However, the miner said it would not be able to meet more than 65 per cent of the ACQ. In order to make imports viable and fill the 15 per cent gap in supply, CIL would have to import 15 MT of coal in the first year and 20 MT in the second.

However, as imports will raise the cost of generation from coastal power plants, the cost of imported coal to coastal pants will be brought in line with CIL’s price of domestic coal of similar quality. The cost differential will be recovered by across the board increase in the CIL price to linked consumers.