Switch to new pricing scheme in calibrated way: Coal India

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Switch to new pricing scheme in calibrated way: Coal India

Speaking to CNBC-TV18, NC Jha, chairman of Coal India said, the switch to GCV has led to huge rise in C, D and part of E quality coal.

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Shares of Coal India came under pressure yesterday after coal minister Sriprakash Jaiswal said the PSU major will implement the new pricing mechanism by the month-end but will ensure this will not result in higher prices for power producers.

Earlier this month, the state-run miner decided to benchmark the pricing for non-coking coal to gross calorific value (GCV) from the current useful heat value (UHV) based gradation, a move that is expected to push up costs for cement and steel makers.

Speaking to CNBC-TV18, NC Jha, chairman of Coal India said, the switch to GCV has led to huge rise in C, D and part of E quality coal. This has created a problem among consumers feel that they have been asked to pay higher prices, he said. "We have no directive from the coal ministry on coal price issue."

According to Jha, the rationalisation of prices will now happen in a calibrated manner but there is no hold on the switch to GCV.

With the new pricing norm set by Coal India for pricing of coal, India's largest power producer NTPC has signaled a hike in tariff rates by as steep as 30-40% .

"The aim is not to improve profitability by GVC switch," he said adding, "we will work out the timeline of price increase in a week."

Below is an edited transcript of Jha's exclusive interview on CNBC-TV18. Also watch the attached videos.

Q: What kind of pricing mechanisms are now being spoken about by the coal minister and how much of a reduction in prices would you have to effect?

A: The issue is that the government had asked us to switch over to the gross calorific value (GCV)-based pricing system from the earlier useful heat value (UHV)-based. We have implemented this from January 1. Now, while working out this, our basic strategy had been to find out what is the discount presently available to the consumers compared to the import parity price. We saw that the discount was ranging from about 25%, at the highest quality level, down to about 77% from the import parity price and there was unevenness in between.

So while we were basing it through GCV criteria, we tried to rationalise that and in that process some of the prices of the intervening qualities, like the erstwhile C, D and part of E grades, got up. There was substantial upside on those prices.

Now this has created a problem amongst the consumers because they feel that so far they have been paying less price but now they are asked to pay for higher prices. If you base the price on the basis of the heat content of coal, then naturally a higher heat content value coal will be costlier price. However, because so far they have been paying much less, they felt that this is quite high.
 
Now, we have been asked by the government to have a relook into this, work out that if we apply the existing price and then distribute that into the different slabs, then how it works. Or rationalize it in a more acceptable manner, so that the rise in the prices for the existing consumers of coal is not highly disproportionate. It is within the acceptable limit. We are working out that, but yes, permutations and combinations have to be applied because the erstwhile UHV-based pricing system also had different price from the same UHV.

The ranging of price was about Rs 300 per tone. That means if the lowest was say Rs 570 for F grade, the highest was Rs 870. If we have to work out Rs 870 then the consumers who are taking at lesser price from different sources have to pay more or if we have to fix somewhere in between somebody would have to take more prices, somebody would have to pay less. So that system will continue to be there because we can't have a GCV-based price different at different sources. It has to be same from any source that we supply coal. It should have that much heat content.

Accordingly, we are working out the details. Hopefully, in next week or so we will be able to finalise that.

Q: Can you give us a sense of how much the price will come down on a blended basis and how much of an impact does it have on your profits and margins?

A: I will not like to have any impact on my profits and margins because my aim would be to keep it at same levels. In that process, some companies' revenues, who were supplying coal earlier at lesser price, will rise and those who are supplying at higher price, their revenues might reduce. However, Coal India as a whole, the total revenue will be same or little higher. I cannot allow any revenue to fall down below what was realised earlier.