Coal price hike rollback after industry fightback

Final call after review of new pricing system in March

Protests by coal consumers, led by the power industry, against the government move to switch to a new pricing methodology have forced state-owned miner Coal India Ltd (CIL) to roll back the price hike under the Gross Calorific Value (GCV)-based system effected on January 1.

Terming the CIL decision to raise rates an “error”, coal minister Sriprakash Jaiswal made it clear the rollback had more to do with the fear of passing on the increase to power tariffs than bringing a more efficient grading system. Announcing the rollback, he said, “Our country is not in a position to increase power prices.”

While the rollback has come as a breather for consumers, as it makes the switch to GCV revenue-neutral, it has eroded Coal India’s cushion against a Rs 6,500-crore impact of a wage hike for its 3,63,000 workers agreed on Tuesday. The new grading system that led to an average 12.5 per cent increase in prices would have given additional revenue of Rs 6,250 crore to the miner annually.

“The additional revenue that could have come from the increase in prices will not be available now. But, this is not a cause for worry, as the new pricing system will be reviewed after three months and a clear picture would emerge then,” CIL Chairman N C Jha told Business Standard. Jha also told a media gathering that some CIL subsidiaries could suffer a revenue loss as a result of the rollback but the exercise would remain revenue-neutral for the company as a whole.

CIL was asked to review the new system by January 31 after a meeting of the standing committee on coal and steel on January 20.

"When we made a switch to the GCV system, there was perhaps an error by Coal India and coal prices went up," the minister said on Tuesday. CIL’s share price on the Bombay Stock Exchange closed at Rs 325.6, down 2.9 per cent from the previous close.

The miner had decided to do away with the earlier system of pricing based on Useful Heat Value (UHV) a month back in an attempt to align pricing with global practices. Power generator NTPC Ltd had recently said the GCV system had pushed up input costs 40 per cent. The coal ministry rejected the claim, arguing the switch was not a cover-up for profiteering. The move was a response to complaints of inferior quality supply from consumers, according to the ministry.

The power industry had raised the price hike issue in meetings with the Prime Minister and the coal minister on January 18. Jaiswal had assured there would be no “irrational increase in prices”.

Jha said a final call on price revision, if required in view of the wage hike, would be taken after studying in March the impact of the GCV review on CIL.