Following a hue and cry over the new coal pricing mechanism adopted by Coal India Limited (CIL) and concerns that could push up power generation costs sharply, the CIL board is likely to meet on Monday to take a call on formulating a new coal pricing mechanism.

Coal Minister, Sriprakash Jaiswal had stated that CIL would try and put in place a new coal pricing mechanism by first week of February. The CIL Board is meeting on Monday and will debate the issue and take a decision. Interestingly, CIL chairman and managing director, N.C. Jha is also demitting office on Monday evening.

Mr. Jasiwal had held a series of meetings within his Ministry after which he stated that CIL had made some mistake in the system adopted for pricing of coal under the new mechanism. CIL shifted to a new pricing mechanism from January 1. Under this system, prices have been linked to the actual calorific value or quality of coal.

The new pricing mechanism resulted in an increase in rates of the fossil fuel though the Coal Ministry had indicated the new formula would be revenue-neutral. Till December 31, 2011, CIL used to follow a pricing mechanism based on the Useful Heat Value (UHV) of coal, which deducted ash and moisture content from the standard formula. Consumers across sectors including power, cement, aluminium and steel have opposed the new method as they feel that prices have risen substantially and this will necessitate in a price increase in their own respective commodities.

Major power sector players led by Ratan Tata and Anil Ambani had met Prime Minister Manmohan Singh last week and protested against the steep hike in coal prices and warned that not only the shortage of coal but its escalating cost would force a major hike in power tariffs across the country.

State-run NTPC had also joined the protest chorus last week and warned of a considerable escalation in power generation cost. The new pricing mechanism of CIL has come under sharp criticism from various quarters including private players. Public and private sector power producers have strongly opposed the new pricing mechanism of CIL implemented from January 1.

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