Cabinet gives in-principle nod to coal price pooling, defers final decision

Major hurdle in implementing pooling mechanism is huge protest from states

In a bail-out for imported coal based power plants, the union cabinet today gave in-principle approval for a crucial proposal to implement pooling of domestic and international coal prices. This will make costly imports of the key power and steel making raw material viable.

The Cabinet Committee on Economic Affairs (CCEA) finalized the blueprint of the controversial pooling mechanism in its meeting today but deferred a final decision.

“The in-principle decision has been taken. There is some data that has to be put into these principles,” Manish Tewari, Minister of State (independent charge) for Information & Broadcasting said after the meeting.

The structure of the decision has been put in place. And the Ministries of Coal and Power would come back with specific details. Basic principles and parameters have been identified. The CCEA would again deliberate on the issue," he told media persons.  

The ongoing fuel crunch for power plants at the back of constrained production from state-owned miner Coal India Ltd (CIL) has led to a massive spurt in costly coal imports. The Planning Commission had proposed the pooling mechanism under which domestic and imported prices of coal were to be averaged out to allow consumers to avail uniform rates irrespective of the fuel source.

A major hurdle in implementing the pooling mechanism is huge protest from state governments. They argue that pooling will lead to cross-subsidizing private companies’ generation costs by increasing coal costs for the public sector companies.

Also, asking CIL to import coal in bulk could lead to cartelization jacking up costs for Indian plants. The New Coal Distribution Policy (NCDP) 2007 mandates CIL to meet the entire coal demand of the domestic industry even if it means resorting to imports.     

The government had last year asked CIL to supply at least 85 per cent Annual Contracted Quantity (ACQ) of power plants commissioned after March 2009. However, the miner said it would not be able to meet more than 65 per cent of Annual Contracted Quantity (ACQ) of plants.

In order to make imports viable and fill up the 15 per cent gap in supply. CIL will have to import 15 MT in the first year and 20 MT in the second to meet the shortfall.

However, as imports will jack up the cost of generation from coastal power plants, the cost of imported coal to coastal pants will be brought in line with CIL’s price of domestic coal of similar quality. The cost differential will be recovered by across the board increase in the CIL price to linked consumers.