Month: July 2012

Is GCV Method apt for Indian Scenario??

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The average cost of coal production in India is steadily increasing, despite increase in
productivity. The coal pricing mechanism is not consistent with the international practice.
Prior to nationalization in 1973, coal prices were set administratively low in comparison
to the production cost leading to losses for many coal mining companies. To allay some
of these losses government set up the Bureau of Industrial Cost & Prices in 1970 to
recommend the appropriate price of coal, based on the average of production cost of all
mines which led to problem for the coal companies with high production cost. In 2000 a new
Colliery order was passed for deregulating the prices of all the grades of coal and Ministry of
Coal will no longer involved in setting the price of coal. According to the order each coal
company is allowed to set its own sale price based on the prevailing market prices.
The recent move of Coal India to resort to fix sale price of coal on Gross Calorific Value (GCV)
rather than on useful heat value of the fuel will have a direct impact on the sale price. This
clearly indicates that Colliery order which is still in place, but only on the paper as the prices
are still being guided by the Government. Though the GCV practice is very much consistent
with the International practice, we need to address one main question as far as India is
concerned: Do we have the proper infrastructure in the place which can accommodate this
practice? As per CIL, the move will have negligible effect where as NTPC claimed that their
coal bill will be rise by 40% from ` 20, 000 Cr to ` 28, 000 Cr. Also there is no clarity on the
method which is to be adopt by CIL for classification, sampling and analysis to finalize the
grade of coal or GCV band of mine. Another important question which raises concern that
why Coal India has gone for GCV analysis on its own where as the Office of The Coal
Controller is the authorized body for declaring the grades and ascertaining the coal
availability. NTPC the largest consumer of coal has requested the Power Ministry to take up
Tthe issue with Coal Ministry. But, all goes in vain as Coal India moved to the new system from
January 1, 2012.
Many of the public utilities have complained that this new system had resulted for wrong
classification of coal because the quality of the same coal which they were getting before 31
December, 2011 as 4200 GCV now they are procuring as 5300 GCV. This points the accusing
finger on the classification procedure and implementation of GCV by CIL. Companies have to
pay much higher prices for the same quality coal than what is required. It is good to keep
pace with international practices but to implement it blindly without proper planning is
surely not a justifiable move by CIL.