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Coal Price Hike to Hit CESC Hard

  • Power generation cost of CESC Ltd, the Kolkata-based power company, is set to increase significantly on account of a new pricing norm by Coal India Ltd that comes into effect from Monday.Coal India Ltd, the biggest producer of the fuel in the country, has unveiled a new pricing system by reclassifying different grades of coal and raising their number from 7 to 17.While this may not affect power producers much, the RP-Sanjiv Goenka-owned company would suffer from a new norm — a 6% levy on all coal produced by Eastern Coalfields Ltd (ECL), one of the two loss-making subsidiaries of Coal India.Most of the coal that CESC sources from Coal India comes from ECL.“For ECL, there shall be a 6% add-on over and above the price mentioned,” the circular by Coal India, detailing the new grades and the corresponding prices, said.

  • CESC sources 45% of its existing requirement from Coal India, while the balance is met from its own mines.For CESC, dependence on Coal India, particularly mines of ECL, is set to go up further as coal linkage for the upcoming 600 mw plant in Haldia has been finalised, according to which about 60% would be sourced from the eastern mines of Coal India and the balance imported.Under memoranda of agreement signed with CESC as well the eastern-region generating stations of NTPC, Coal India was being paid Rs4,950 a tonne for A grade and Rs4,800 a tonne for B grade coal.While under the new gross calorific value method, costs are not likely to go up much for CESC, it would have to pay an additional 6% over such prices.

  • CESC’s move to progressively use lower grade and cheaper coal due to corresponding improvement in power generation technology was allegedly being frustrated by Coal India’s monopolistic attitude, the power company had claimed in its last tariff petition.“On a rupee per heat value basis, B grade is by far the costliest. ECL claim to supply largely this variety of coal to CESC. Due to monopoly power of the coal company, together with coal scarcity and existing FSAs (fuel purchase agreements), there is hardly anything that CESC can do to remedy this situation,” CESC’s tariff petition had said.

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