KOLKATA (miningweekly.com) − India will adopt the international practice of pricing coal based on gross calorific value (GCV) from January, in a move to close the gap between domestic and international rates.

Currently, Indian domestically mined coal is priced based on seven ratings, grades A to G, that price the respective grades according to the useful heat value (UHV).

The new pricing formula would reduce the price differentials between imported and domestically mined coal, which ranged as high as 30% to 60% based on different UHV grades.

The resulting upward revision of prices would also partially mitigate Coal India Limited’s (CIL’s) sagging profitability and rising wage bill. CIL, the world’s largest coal miner, accounted for over 80% of Indian domestic coal supplies.

India was the only country that did not use GCV as a benchmark for pricing.

“The Coal Ministry has directed us to gradually shift to GCV benchmarks from January 1, 2012,” said CIL chairperson N C Jha.

“This will be done in a phased manner and will bring the price of domestic coal on par with international prices. Another reason for the phased implementation was because the GCV benchmark would increase the price of coal and a sudden implementation would badly hit the thermal power generation sector,” Jha said.

If the GCV of a particular grade of coal was higher, it would have a higher price and a lower price for lower GCV value. It was possible that the current price of a particular grade was lower than the GCV value and in that case, the price would be increased. On the other hand, if the existing price of a certain grade was higher than the GCV value, it would be reduced. But on average, domestic prices of coal would increase, CIL officials said.

CIL has reported a net income of $516-million for the second quarter ended September. It did not disclose the previous year’s corresponding figures since the company was then not listed.

Production during the period was reported to have fallen 5% year-on-year to 80.3-million tons.

The company said it would grow full-year output by 4.8% to 452-million tons. But according to analysts, production could be lower than the 431-million tons achieved in the previous year. A decline in full-year production would be the first for the company since 1998.

A price revision based on GCV would protect CIL’s net income earnings during the last quarter even on stagnating production and also partially absorb the possibility of the doubling of CIL’s current wage bill of $4.3-billion, which constituted 42% of total expenditure. CIL trade unions have demanded a wage increase of 100% to 500%.

CIL was currently engaged in negotiating a new wage agreement with its trade unions under which the basic wage would be pegged at $181 per worker. One of the unions had placed a demand for it to be increased to $871 per worker. CIL has 370 000 workers on its payroll and another 30 000 work with the company on a contract basis.
 

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