The coal ministry has shot down a Planning Commission proposal to formulate a policy to “pool” domestic and international coal prices. The move was aimed at taming the rapidly increasing input costs for end-use industries, by bringing a uniformity in raw material rates in the key infrastructure sectors of power and steel.
The ongoing historic fuel crunch for power plants at the back of constrained production from state-owned miner Coal India Ltd (CIL) has led to a massive spurt in the use of costly imported coal for firing power plants. The Planning Commission’s proposed pooling policy sought to average out domestic and imported prices of coal so as to allow consumers to avail uniform rates irrespective of the fuel source.
Now, the coal ministry has called the idea impractical and untenable. Any mechanism to share the burden of imported coal by pooling it with domestic coal prices would imply cross-subsidising power generation costs, it said. This “is contrary to power sector reforms and provide for benefiting a few imported coal-based plants at the cost of others”, the ministry said in a recent note for the PM’s meeting on coal shortages due to take place soon.
The pooling proposal is also in conflict with the government’s broader intention to move towards rationalisation of fuel prices by integrating them with those prevailing in the international markets and doing away with subsidies, according to the ministry.
India produces 530 million tonnes (mt) of coal annually. This falls short of the domestic demand by a good 60 mt, which is met through costly imports. The gap in the demand and supply is expected to cross 200 mt by the end of the 12th Plan period that ends in March 2017. The global thermal coal prices are around 70 per cent higher than the current domestic notified price of Rs 1,200 per tonne. The ministry has also argued that providing domestic consumers with coal at a pooled price would severely impact the earnings of 1975-founded CIL, which was to be the nodal agency for such imports as per the proposal. “The proposed move would erode CIL’s margins and slowly erode their surpluses,” the ministry said.
Another problem with the proposal is the complexity arising out of the large number of available sources of import and receiving ports with varying quality of coal to a number of consumer destinations. As a solution, the ministry has suggested extending subsidy to the states where plants using imported coal are located.
