Coal news and updates

Asset value, imported coal rate not to be factored into auction price

To make sure power tariffs do not rise after coal blocks are sold, the Centre is unlikely to factor in the price of imported fuel or the cost of the asset in the proposed auction price when it puts 92 blocks up for bidding, said an official. Fifty-nine of the 92 blocks that are being sold in the first phase of auctions are for the power sector.

“If these two components (valuation of the asset and the import price) are added, then it would be difficult to sustain tariffs at the present level,” said another official, adding that the “final call will be taken by the Cabinet.” At present, coal prices are based on the grade of the coal.

This new thinking varies from some of the auction methodology proposals submitted to the Ministry by stakeholders. One wanted the value of the asset as well as the average price of imported fuel included.

The lowest grade of domestic coal, with a gross calorific value (the rate of heat produced) of 2,200-2,500 kCal/kg, is available at around ₹550 a tonne and the highest grade, of 6,700-7,000 kCal/kg, is priced at over ₹5,000 a tonne. The power sector mostly uses coal with 5,900 kCal/kg GCV, sold at ₹2,590-2,800/tonne.

The free on board price for Indonesian coal of 5,900 GCV is around $65/tonne (or around ₹4,100). A 1,000 MW power project requires 5 million tonnes of coal annually.

The average cost of power from the country’s largest power generator, NTPC, is ₹3-3.30 a unit. This is the rate at which the distribution utilities source power from NTPC. The end-consumer price varies as the utilities set the rates based on the recommendations of their electricity regulatory commissions. For example, the tariff in Delhi varies from ₹4.50-6.50 a unit.

A power industry source said: “It is as yet difficult to put a number on the generation cost increase if the imported coal price were also factored in. Basically it would depend on the percentage the government would have taken. So, based on an earlier estimate for 2014-15, a 30 per cent mixing of imported coal will lead to an average increase in the generation cost of 74 paise a unit.”

As for the valuation of the asset, the Central government official said that “it is mainly to deal with the compensation to be given to the players who had already made investments in the blocks that have been de-allocated following the Supreme Court verdict”. The ordinance is very clear that the asset valuation will be based on the investments made for mining activity.

Source: The Hindu BusinessLine