Date:14/06/2004 URL: http://www.thehindubusinessline.com/2004/06/14/stories/2004061401500500.htm

Back Thermal coal prices likely to remain stable

Ambarish Mukherjee

New Delhi , June 13

DOMESTIC prices of thermal coal - used in power plants as fuel feedstock - are likely to remain stable at current levels despite the recent price spurt in the international market.

This is because the Government-controlled Coal India Ltd (CIL), which enjoys monopoly in the domestic market, is not effecting any price rise despite the global trend.

According to CIL officials, the increase in the international prices of thermal coal will not have any major impact on the domestic situation, primarily because imports are actually very low.

"While the total annual consumption of thermal coal is around 200 million tonnes across the country, our imports are a meagre 4-5 million tonnes," officials said.

"So, the high international prices may generate some additional demand from those units who will find imports uneconomical. Even then, such additional demands will be for very small volumes."

Explaining the dilemma that the public sector coal producer is facing, they said that while the rise in global coal prices followed the increase in international oil prices, their impact on the domestic market would be totally different because of the various levels of administrative controls on oil and coal.

"While domestic oil prices have been linked with international prices after the removal of the administered pricing mechanism (APM), there are no such linkages for coal," they said.

"Though coal prices are not administered prices per se, CIL, being Government-owned, always has had a say about coal pricing."

They added that since more than 80 per cent of CIL's thermal coal was purchased by Government agencies themselves, there has been no decision yet to increase prices.

According to the officials, it is usually the low-heat content coal that is used as thermal coal, mostly by power stations.

CIL is working out fuel supply agreements (FSAs) with individual plants which incorporate details of supply and payment mechanisms and as such, the contracts are immune to fluctuations arising out of changing international prices.