New CIL pricing to hike cost in energy-sensitive firms

Coal India's (CIL) new pricing mechanism is likely to raise operating costs of companies in the energy-sensitive sector, rating agency Icra said today.

"The operating costs of companies in energy-sensitive industries like primary aluminium are also likely to increase since many of them have coal-based captive power plants, the fuel cost of which would rise under the new system," Icra said in a statement.

It further added that the cost of companies in non-core sectors, including sponge iron and cement industries, is also likely to increase significantly in the future under the revised pricing mechanism for non-coking coal of CIL.

CIL switched over to the new pricing mechanism with effect from January 1. Under the new system, prices are linked to the actual calorific value or quality of coal.

The earlier mechanism was based on the useful heat value (UHV) grading system, which deducted ash and moisture content from the standard formula.

The rating agency feels that the impact of new pricing mechanism on the power sector, which uses E and F grade coal, is likely to be mixed.

Icra, however, said, "The impact on the power sector is expected to be mixed, depending upon the grade of coal a company was buying earlier and also the colliery it was procuring the coal from."

"Given the coal shortage scenario, many non-core players were dependent anyway on costlier coal procured from e-auction and/or imports, and the overall impact of the revised coal price on their cost of operations would be limited to that extent," senior vice-president and Co-Head (Corporate Sector Ratings) ICRA Jayanta Roy said in a statement.