KOLKATA (miningweekly.com) – The Indian government will leverage its majority stake in Coal India Limited (CIL) to keep coal prices low to ensure cheaper electricity tariffs.

Having a majority representation on the CIL board, government-nominated directors would impress on the board the need to keep electricity tariffs low by keeping the price of domestically mined coal at least 10% below the landed price of imported coal.

“CIL has a purpose to serve. If CIL were allowed to fix [its] own prices for profitability, then [it] will fix it 10% below the landed price of imported coal.

“The government of India owns CIL. As the board, we express concerns over keeping electricity tariffs low. [CIL] will have to keep prices down,” coal secretary Anil Swarup told business representatives on Thursday.

CIL, which produced more than 80% of domestic coal supply, last year increased the price of coal mined at select mines but was prevented by government from implementing across the board price increases.

Simultaneously, the miner had not been successful in implementing a dual pricing strategy for coal produced from opencast and underground mines, as production costs and capital investments in the latter were higher.

With the government, in effect, putting a cap on pricing strategy, the coal miner would now have to increasingly rely on sales from e-auctions to maximise realisations. But here, too, government intervention and a lack of clarity would be a hindrance for CIL to enhance profitability, according to some CIL officials.

CIL sold coal through a ‘notified pricing’ regime and through e-auctions, with the latter attracting prices about 30% higher than the notified price.

Last year, the government dealt a blow to CIL’s efforts to maximise sales realisations when it set a cap of 25-million tons for sale through the auction route. However, earlier this year, the Coal Ministry – the administering authority of the miner – issued a fresh directive under which CIL was allowed to sell 5% of total sales through auctions.

Meanwhile, even as restrictions over CIL’s e-auction sales volumes persisted, the government was considering extending the electronic trading platform for private miners too.

For optimal use of the trading platform, the government was working on tweaking rules to enable miners who secure coal blocks through auction.

However, this would be restricted to those coal blocks that would be auctioned for commercial mining without any end-use stipulation, and coal mined for merchant sales, and not coal produced from mines auctioned specifically for captive consumption.