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Tuesday, January 10, 2012

Electricity to cost 60 paise/unit more on new coal price formula

Your electricity bill could go up by 50-60 paise a unit as early as February, triggered by the recent increase in coal prices. Currently, the average cost of power is Rs 3-4 a unit. The average realisation for NTPC in the September quarter was Rs 3.3 a unit, up from Rs 2.66 last year.
Effective January 1, Coal India switched from the useful heat value (UHV) based coal grading system to gross calorific value (GCV) system for pricing coal.
This move has not gone down well with power producers, as this will push up the fuel cost. The producers have been raising the issue with the fuel suppliers. Though suppliers claim that migration from the UHV to GCV based system will be revenue neutral, those tracking the sector said that in reality there will be a big increase in pricing without any value addition.
Power generating companies typically use grade E and F coal. The basic price of grade E coal will be Rs 880-1,781 a tonne against Rs 730-1,090 under the old pricing system (data based on ‘Final offer document' of Coal India). For grade F coal, the price will be Rs 630-933 against Rs 570- 870 earlier.
Sources privy to the developments told Business Line that utilities have raised the issue with Coal India, which has assured them that if the consumer price gets affected beyond a point, say,higher than 10 per cent, then the mechanism can always be reviewed.
On December 30, the Power Ministry had written to the Coal Ministry stating that the switchover would have serious technical and financial implications on tariff. This was based on deliberations with various Central and State power utilities and the Central Electricity Authority.
Though agreeing that the implementation of GCV-based coal pricing system is in sync with international practice, it also requires that some prerequisites are met before it is implemented, the Ministry said.
Some of the requirements include an automatic sampling facility. Further, in the international coal market, where GCV-based pricing is adopted, coal is sold through legally enforceable fuel supply agreements, with stringent provisions on quality parameters and penalties for deviation from the stipulated parameters. The existing fuel supply agreements would need to be suitably modified to adopt these practices.
UHV-based pricing is based on empirical formula (which deducts ash and moisture content from the standard formula). Under UHV pricing, the coal is categorised into seven grades. The worry was that these bands were very wide and did not offer significantly higher price for washed coal.
GCV-based pricing, on the other hand, is linked to the actual calorific value or quality of the coal. Coal India is classifying the seven grades of coal into 17 bands under gross calorific value. Coal with similar calorific values may have similar price across the mines. There will be a discount on coal with high ash content.

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