Coal prices may be freed further

Market rates likely for Aluminium, paper firms.

In a move that may raise the prices of paper and aluminium, the government is planning to bring the two sectors out of the definition of core sector for allocation of coal linkages.

Coming out of the core category can result in an increase in coal prices for companies like Hindalco, Nalco, Balco and Sterlite Industries.

At present, Coal India Ltd (CIL) and its seven subsidiaries sell coal at a basic price ranging between Rs 1,870 and Rs 270 a tonne depending on its quality.

A government official told Business Standard, "If these two sectors are moved out of the core sector list, they will have to pay the market price, which can be at least 15 per cent higher."

Coal India has been pitching for the exclusion of the two sectors on the ground that they are strictly not infrastructure sector industries. The proposal is being discussed by the coal ministry, the Prime Minister's Office and the Cabinet Secretariat.

Contesting the proposal, a senior aluminium company executive said, "The logic should apply to even the cement industry, which qualifies for core category definition."

According to him, most of the coal consumed by aluminium plants is used for captive power generation. "With power being in the core category, captive plants should continue to get coal on the same terms as the power sector," he added.

Over 70 per cent of coal in the country are consumed by the power sector but coal ministry officials said they should be paying market-determined prices since the prices of end-products of these industries were not controlled.

If the move to remove the aluminium and paper sectors from the core sector comes through it will be the second such move towards market-driven pricing after e-auctioning, which has been adopted on a trial basis by Coal India.

The government is already thinking of allowing Coal India and its subsidiaries to sell 5 per cent of their output through e-auction to consumers other than those in the power, cement, and iron and steel sectors.

The government had deregulated the prices of non-coking coal of certain grades, coking coal and semi/weakly coking coal in 1996.

BOOTOM LINES TO BE HIT

If Coal India's proposal goes through, it could burn a hole in the pocket of aluminium and paper producers. Both the industries are power intensive and coal is their primary source of captive power.

The aluminium industry uses 20 tonnes of coal to make a tonne of aluminium. The paper industry uses 2 tonnes of coal to produce a tonne of paper. Thanks to its inclusion in the core sector, the paper industry saves 5-7 per cent of its coal costs annually.