Rollback in coal price rise saves NTPC from a Rs 7,700-crore hit

The government’s decision to roll back a 12.5 per cent rise in coal prices might have eroded Coal India’s cushion against a Rs 6,500-crore wage impact. But it came as a blessing for another public sector undertaking, NTPC. The state-owned power generator is saved from an additional annual outgo of Rs 7,700 crore, 85 per cent of its annual profit.

The coal price rise, a result of the switchover to the new gross calorific value (GCV)-based pricing system, was rolled back due to intense protests from the domestic coal consuming industry, led by power sector companies, including NTPC.

The company spends Rs 35,300 crore a year on purchasing 137 mt coal to fire 36,000 Mw of installed capacity. The fuel cost accounts for 77 per cent of NTPC’s annual expenditure of Rs 45,400 crore. Around 56 per cent, or Rs 20,000 crore, of the company’s annual fuel expenditure is directed at purchasing domestic coal. Pricing under the GCV system would have pushed this up to Rs 27,700 crore.

“We welcome the decision for reduction in coal pricing. An increase in coal pricing leads to costlier power for the consumer,” said a senior NTPC official.

Coal India, which meets majority of NTPC’s coal demand, decided to do away with the earlier useful heat value (UHV) system of pricing a month ago, to align the Indian pricing system with global practices. The new system came into effect on January 1.

NTPC contended the new system had pushed up input cost by an average 40 per cent across its plants. Fuel cost for its Singrauli, Rihand and Vindhyachal power stations that source high quality C and D grade coal from Northern Coalfields had shot up 100 per cent. Fuel cost for the Ramagundam and Unchahar power stations had increased by 20 per cent. Simhadri and Talcher had witnessed an 11 per cent increase. However, there was no impact on the price of coal supplied to the Kahalgaon and Farakka plants. The differential impact across plants was due to the differential increase in coal grades effected by the GCV system.

Coal India, however, denied that the average increase in coal cost for NTPC could have been 40 per cent under the original GCV scheme. “This is absolutely impossible. In fact, prices in some grades used by NTPC were reduced by 15 per cent,” former Coal India chairman N C Jha, who retired yesterday, told Business Standard.

Under the UHV system, C grade coal used to be supplied at Rs 1,290-1,860 a tonne. Under the GCV system, the same quality coal fell in bands six, seven and eight, priced Rs 1,890-2,940 a tonne. Under the revised GCV scheme announced yesterday, the same coal would fetch a lower price of Rs 1,140-1,450 a tonne.