India: Companies may be asked to sell surplus coal at discount

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

31 Aug 2009

Steel, power and cement companies will have to sell surplus coal from their captive blocks for 20% less than the government-determined price, according to a policy being framed by the coal ministry. As the notified price of coal is already 40-50% lower than market rates, the proposal is certain to nix these companies’ plans of making some tidy profits.
The “policy on disposal of surplus coal from captive blocks” is expected to be announced soon, said a coal ministry official. The policy aims to ensure that coal from a captive mine is used only for production purposes and not to earn profits, he added, requesting anonymity.
“The government has offered several coal blocks for captive use and some of the blocks may generate a surplus,” the official said. The government-determined price (technically called notified price) is fixed by a joint committee comprising coal ministry officials and government-owned Coal India (CIL).
This price, which varies between Rs 440 and Rs 2,200 per tonne depending on the type of coal and location of the coal mine, is typically lower than the market price as it is determined on a cost-plus formula. The market price of high-grade thermal coal is well over Rs 3,500 per tonne.
Till date, over 200 coal blocks with geological reserves of over 40 billion tonne have been allocated to various public and private sector companies, most of them in the last three years. The private sector has almost half of these blocks with reserves of around 15 billion tonne.
A senior CIL official said though some guidelines are available for sale of surplus coal, it has never been used so far as captive blocks have only recently started production and none are yet to show surplus production.
The current guidelines also say surplus coal generated by a captive coal block has to be transferred to the nearest CIL subsidiary. The price to be paid for the surplus is determined by the coal controller on a case-to-case basis. The draft policy also stipulates regulations for sale of other types of surplus coal.
They are jhama (burnt or oxidised coal due to some natural phenomenon occurring in coal mines and is incidental to coal production), washed coal (good grade coal washed of impurities), middling (by-product of washery) and rejects.
The country’s coal production touched around 500 million tonne in 2008-09. The government wants to increase the pace of coal production to meet the growing needs of companies; promoting captive mining is one way of achieving the target. Already, there is a shortfall of 50 million tonne of coal in the country.

Source: Economic Times India