GCV too hot to handle, CIL cuts prices

Coal India on Tuesday bowed to pressure from buyer industries and rolled back the price hikes taken through a shift to gross calorific value (GCV) based pricing from January 1.

“We have made the GCV revenue neutral,” said Sri Prakash Jaiswal, the Union coal minister.

The Coal India board and the Ministry of Coal reviewed the GCV mechanism on January 28.

While the Coal India management wanted some reduction in the prices of coal, it was under the ministry’s pressure that the decision to make GCV revenue neutral was taken.

The near-monopoly coal producer was earlier pricing coal based on the useful heat value, or UHV.

The shift to GCV-based pricing —- under which coal prices are calculated based on the heat produced by burning it rather than on the basis of moisture and ash content present in coal —- had pushed up prices by an average 12.5% for buyers.

The new mechanism classifies coal into as many as 17 categories, as against seven earlier, with GCV ranging from 2,200 Kcal/kg to 7,000 Kcal/Kg.

Tuesday’s announcement means while the GCV system will stay, it will add little to Coal India’s topline.

“The new pricing is based on the weighted average price of coal for the erstwhile UHV-based grades, which have been suitably extrapolated for the GCV slabs on the basis of price per million calorie for various grades so as to bring about a revenue neutrality as a whole,” said N C Jha, chairman and managing director, Coal India.

However, the coal ministry will review the prices in March.
The rollback comes as a great relief to all coal consumers, particularly the power sector, as in some cases prices had gone up drastically — as much as 30-50% for grades in 4,900-5,800 kilo calorie band — according to the price list available with DNA.

However, prices of coal above 6,100 Kcal have not been cut much, perhaps because the power sector does not use superior grade coal and also because prices for these grades were hiked a year back and customers are now used to paying an import parity price.

The reduction from the January 1 level has been highest in the 5,500-5,800 Kcal and 4,600- 4,900 Kcal bands.

Interestingly, the earlier announced 6% price hike on all coal produced by Eastern Coalfields has been quietly withdrawn. Instead, customers of Western Coalfields will now have to pay 10% extra.

The add-on for ECL has been removed following backstage political pressure exerted by West Bengal chief minister Mamata Banerjee, who even threw her might behind a public interest litigation filed against Coal India for successive price hikes.