Coal India's new pricing policy likely to cut power generation cost

Prices would reduce by a minimum of Rs 19 per tonne for the lowest grade and a maximum of Rs 48 per tonne for the highest grade for every 100 unit reduction in energy content measured in kilo calorie.

Image source: Reuters

Key Highlights:

The new pricing policy is expected to bring down cost of power generation

There are nine slabs in the new system

In some cases, prices have been reduced even to the extent of Rs 162 per tonne

Coal India's new pricing policy, which involves selling coal on the basis of total energy content in each consignment, is expected to bring down cost of power generation that would be passed on to consumers, reports ET.

"Under the new policy, prices of seven grades have been reduced," CIL chairman Gopal Singh told ET, adding, "In some cases, prices have been reduced even to the extent of Rs 162 per tonne compared with present coal price chart. It would make power generation cheaper."

According to the report, in its new coal pricing policy, which will come into effect from April, coal was graded on the basis of total energy content. Each of these grades will have a different rate for one unit of energy within these slabs with higher prices for higher calorific value.

Prices would reduce by a minimum of Rs 19 per tonne for the lowest grade and a maximum of Rs 48 per tonne for the highest grade for every 100 unit reduction in energy content measured in kilo calorie.

"Deterioration in coal quality even by 1 unit of energy measured in kilo calorie will be addressed by the present system in contrast to the older system where the band width for a particular grade was 300 kilo calorie," Singh said.

There are nine slabs in the new system, according to a Coal India executive, for example, coal with total energy content varying between 3,101 kilo calorie per kg and 4,600 kilo calorie per kg will be billed at 23 paise per unit of energy.

As per the report, this means that the price of coal per tonne for this grade will vary between Rs 713 per tonne on the lowest side for the grade and Rs 1,058 per tonne on the highest side of the grade. The current price for this grade is fixed at Rs 886 per tonne as long as energy content per kg lies within the grade.

"In determining the rate of energy for each unit within each slab, we took the middle value of total energy content per kg of coal for each of these grades and arrived at a one unit of energy price in a way that it matches the latest price tariff," Singh told ET.