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CIL revises its prices, sticks to GVC; delinks the rates from international parity prices

31 Jan 2012 Evaluate

The world’s largest coal miner -- Coal India has rolled back its policy of linking rates to international parity prices, thus effectively bringing down the prices of coal. Justifying its move, CIL cited that the earlier system had led to drastic increase in the price of coal for certain bands eliciting strong reactions from certain sections of the industry. Hence, CIL had decided to revert to its earlier policy of linking coal prices to domestic prices, however, GCV (Gross Calorific Value) based grading of coal would continue.

The new pricing system was based on the weighted average price of coal for the erstwhile UHV based grades, which have been suitably extrapolated for the GCV slabs on the basis of price per million calorie for various grades. As a result, the prices of coal would reduce for some companies, but may also go up for certain other companies who were benefitted from very low prices. However on the whole, the industry would remain unaffected. For CIL too, the new formula would be revenue neutral and the new pricing mechanism would be reviewed in early next financial year after assessing the performance of Coal India in the January-March quarter.

The maharatna company had migrated to a new system for pricing its non-coking (NC) coal on the basis of Gross Calorific Value (GCV) w.e.f. from January 01, 2012. Till December 2011, the company used to follow the Useful Heat Value (UHV) based method to price its NC coal. The revised mechanism was more in line with the international system as against the previous mechanism, which was an old method and depended on moisture and ash content through the application of an empirical formula. However, the new pricing policy had brought sharp reactions from the industry forcing CIL to reconsider it.

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