CIL approved the Switching Over to Gross Caloric Value-based Pricing Mechanism

State-owned Coal India (CIL) announced on 2 January 2012 that its board approved in a meeting held on 30 December 2011 the switching over to internationally-accepted Gross Caloric Value-based pricing mechanism. The new system is based on the recommendations of the Integrated Energy Policy Committee and the Expert Committee on Road Map for coal sector reforms.

The board approved switching over of non-coking coal pricing from Useful Heat Value based grading system to Gross Caloric Value (GCV) based classification with effect from 1 January 2012. GCV measures the amount of heat released by carbon and hydrogen in coal when it is heated and is an internationally accepted pricing mechanism. the UHV mechanism was followed in India Howeverbecause of the high-ash content in Indian coal. The UHV took into account  the heat trapped in ash. In Indian coal, GCV is 25% higher than UHV.

The Coal Ministry mentioned that the pricing of coal on GCV-based mechanism was not likely to lead to any significant change in pricing.

The new system will incentivise improvement in quality, resulting in better quality of coal to consumers and commensurate revenue realisation for coal firms.

Impact
The revision of coal prices as per international norms is believed to raise input costs of power utilities for which consumers may have to pay more once the new price is passed on power tariff. state power utilities will be the worse affected. The state poer utilities will have to step down generation leading to blackouts.

Against the seven varieties of UHV coal that was available till 31 December 2011, from 1 January 2012 coal will be sold in 17 price brands ranging from the variety that produces 2200 kilo calorie to one that produces 7000 k cal. In between, there are 15 price bands, each at an incremental rise of 300 k cal.

Coal of B, G and F grades will not be affected as new prices will be either same or lower, those using However, power utilities that use different quantity of coal from across the grade spectrum, will be hit by the steep hike in A, D and E category coal.

Power utilities is to be be doubly affected as the monopoly has decided to levy 6% extra on coal from Eastern Coalfields Ltd (ECL) since it's a sick subsidiary listed with the Board for Industrial & Financial Restructuring (BIFR). ECL supplies coal to both CESC and WBPDCL.

Coal India however opined that coal priceeven after revision of prices would be still be 77% lower than the international prices for power, fertilizer and defence and 25% for others.