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Govt likely to announce the coal price pooling mechanism soon

05 Feb 2013 Evaluate

The government is expected to announce a mechanism for price pooling of coal - blending, the cost of domestic fossil fuel with the imported one to offset high price. The Cabinet Committee on Economic Affairs (CCEA) is likely to consider a note for coal price pooling mechanism on 4th Febuary.

Last week the coal ministry had circulated a cabinet note on price pooling mechanism inviting comments from various departments like Power ministry, Planning Commission and state governments. The power ministry after consultation with the Central Electricity Authority (CEA) has suggested the Coal Ministry that the difference in cost of imported and domestic coal should be added to the cost of indigenous fuel at the time of finalising proposal for pooling coal prices.

As per the CEA, the difference in price of the imported and domestic coal would be transferred on to the cost of domestic coal as imported coal is approximately priced at Rs 6,000 per tonne and domestic coal at Rs 4,500 per tonne. Further it said that the approximate difference of Rs 1,500 per tonne would be multiplied by the total quantity of coal to be imported, including the cost of transportation, and the entire sum would be divided on the basis of quality of coal to the power stations.

However, several state governments, including West Bengal and Odisha, have opposed the proposal of Central Electricity Authority (CEA) regarding pooling of price for both domestic and imported coal. The Odisha government had opposed it saying that it was not relevant to the power generating companies located very close to coal mines. Likewise, the West Bengal government also raised objections to coal price-pooling and suggested to coal India (CIL) that such a mechanism was not acceptable to it.

While, the Planning Commission was of the view that to offset the impact of high import costs, CIL should adopt a pooling formula on prices by combining rates of imported and domestic coal.

Earlier, the Prime Minister's Office had also asked both CIL and CEA to work on coal price-pooling. Coal India had said that price pooling was a mechanism to implement fuel supply agreement (FSA) and if price pooling is approved then 15 percent supply of imported coal ‘will be not in the cost plus method, but in pooling mechanism’. Coal India board had earlier approved the modified FSA without price-pooling with 65 percent domestic coal and 15 percent imported coal at cost plus basis.

Till now, 48 companies have entered into fuel supply pacts with Coal India for receiving the fuel. According to the FSA, Coal India has to provide an assured supply of minimum 80 percent of the total quantity, if failing to which would be penalized.

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