Last week, the coal ministry rolled out a national coal index based on the weighted average prices reported by the CIL, e-auction and import prices for all sectors. Based on the index, it determined representative prices for each grade of coal. These prices will be used to calculate the percentage of revenue that the bidder agrees to share with the government at the next block auction. They ‘re going to sell coal in the free market.
The National Coal Index representative price of G17, one of the lowest energy content in the non-coking coal commodity basket of CIL, is marginally lower than the estimated Coal India price for the non-power sector by 0.19 per cent, but this segment was barely 0.2 per cent of Coal India’s sales in 2018-19.
Index-based prices are 46%-54% higher for grades used by the largest coal-consuming industry, oil.
Jayanta Roy, head of corporate sector ratings at ICRA, said that commercial miners would try to maximize their revenues in the free market, but Coal India, which meets the bulk of demand, would continue to influence the market, at least in the medium term, by forcing free market operators to adjust prices in line with the largest seller.
“Some may be able to command higher prices if they can differentiate in terms of steady supply assurance, consistent quality, efficient delivery and easier credit terms,” he said.
Former CIL Chairman Partha Bhattacharyya said higher index-based prices have shown that Coal India is consumer friendly and competitive.
CIL executives argued that because coal from commercial blocks has the benefit of no end-use limitations, their prices would be on the higher side.
Power industry executives said coastal plants with easy access to overseas coal will find index-based prices high and prefer to import.
“Coal India is expected to stay ahead of competition with a strong resource base, core expertise of operations, updated mechanization and multi-disciplinary work force,” former CIL chairman A K Jha said.
“CIL, however, will have to reduce costs and inefficiencies to keep prices competitive,” said ICRA’s Roy.
