Coal India Ltd (CIL) is increasing its prices. But marking a departure from the past, the price increase has been done selectively with the concept of dual-pricing being rolled out for the first time. The logic behind the exercise is to minimise the impact of the price increase, while also protecting CIL's margins. The impact of the increase on the wholesale price index has been assessed at 0.17 per cent.
Speaking on condition of anonymity, sources told The Hindu that with the aim of minimising the impact on the common man, the price hike would effectively be a three-tiered one, with the impact on the power sector being 7 paise per kilowatt hour.
While the power utilities, independent power producers (IPPs), fertilizer and defence sectors are being exempted from a straight across-the-board increase, a 30 per cent hike will become effective for all other sectors whose products enjoy market-driven prices. The increase has been pegged with the floor-level of the spot e-auction prices of coal. “The floor of spot e-auction prices (now commanding an 80 per cent premium) is 30 per cent above present notified prices.”
Sources said that the idea behind introducing this concept was to introduce a differential pricing-system for sectors whose product-prices are market-driven and another for sectors like fertilizer and power whose prices and are not market-driven. In the second layer, the price of coal produced by CIL subsidiary Mahanadi Coalfields Ltd (MCL) has been increased to bring it on a par with that of South Eastern Coalfields Ltd (SECL) (from which MCL was carved out in 1992). For historical reasons, MCL's prices were lower than SECL. Following this parity, all consumers now linked to MCL, including power utilities and IPPs, would have to pay a higher price. The same notification would also bring the notified-price of the higher grades of coal, namely A and B with a 5600 UHV, on a par with international prices (but with a 15 per cent discount after adjusting for the calorific values).
This would mean that what was earlier being done on the basis of bilateral agreements and memorandum of understanding between the respective coal companies and their individual consumers, would now become part of the notified price structure. This forms the third part of the price structure sources said.
No figures were available for the additional revenue generation this will entail for CIL in a full year. Sources said that while an across-the-board increase through all sectors would have brought margin growth, this price increase will at least help protect margins and bring in some growth.
Following its listing in November 2009, CIL now faces a wider gamut of shareholders who had voiced concern over the low output growth rate and its impact on profitability. The near-stagnation in production this fiscal, on account of environmental issues and the looming wage negotiations in June 2011, was worrying CIL.