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‘Is pooled price mechanism workable solution?’

September 24: Supply of imported coal to all consuming sectors in India on a pooled price mechanism could be feasible now as the pricing of domestic coal is based on the gross calorific value (GCV) and only with some correction it will be possible to implement the pooling system, said N C Jha, former Chairman of Coal India Ltd (CIL).

“During my service period, I was not in favour of price pooling, but the way things have developed since then, I think, price pooling is a solution now,” Jha told ICMW.

Asked how could a system, which he did not find effective during his tenure, has suddenly become workable, Jha explained that price pooling was not workable then because India (and therefore, CIL) was not following the universally accepted coal pricing mechanism.

Currently, working as Chair Professor (Sandvik Chair) at Indian School of Mines (ISM), Jha explained, “CIL’s pricing of coal was based on the Useful Heat Value (UHV) basis, whereas in international markets, the commodity was sold on GCV basis.” However, towards the end of his tenure, after 30 years of struggle, CIL could bring in the GCV based pricing system, he added.

“So now there is not much of a problem for price pooling because Indian coal is being also sold on GCV basis while imported coal is being procured on GCV basis,” the former CIL CMD said. “What needs to be done is to pool this price and correct the pricing system. When we switched over from UHV to GCV, the pricing remained on the basis of UHV, but only the scale was changed, which is not correct,” he said.

“There was increase in prices of some bands of GCV.  In the middle band, the increase was quite substantial, which led to an uproar in the industry as people used to get that coal at much lesser price earlier. Then we had to revisit the pricing and reduced it too.  But I still feel that it was not the correct thing to do, ie, reducing the price was not correct,” he said.

Elaborating, Jha said, “If someone is using higher GCV coal, he has to pay a higher price. If I import coal of a certain GCV, and supply those at a price which is equal to F grade coal, this is not logical. If somebody is getting more heat value, he has to pay more.”

“So my point is that there is a need to correct the pricing system first. After that, you bring in imported coal and whatever the extra price is, you load that uniformly on GCV. When prices have already corrected, that means the pricing will be linear,” he said.

Jha, however, pointed out that linking domestic coal to international level may not be the right approach. The correct thing to do would be to “make linear the prices because one already has the current price of the highest band of GCV coal and also the current price of the lowest GCV coal. After making it linear, divide it into 17 grades that CIL today has and fix the prices of all these grades based on linear basis” to find out the Indian pricing system.

“If I am buying imported coal at some higher price for the same GCV, the difference can be uniformly loaded on all the 17 grades, so the price of that particular coal will also jack up because if once the price is in relation to GCV, then naturally, the per unit heat price will be the same,” he said.

“And if the per unit heat value is the same, and if you are loading the extra price of that imported coal on to all the 17 grades, still the per unit cost remains the same. If we do that, then everybody will be inclined to take imported coal through Coal India and nobody will have any grudge because he will be getting imported coal at a price lesser than what is available in the market, while others will also get domestic coal at a price which is actually applicable for that particular GCV,” Jha felt.