Coal India reversed a price increase recently as the world’s biggest coal miner bowed to pressure from the government which is struggling with massive power shortages that are a drag on growth in Asia's third-largest economy.
The cost of coal rose this month after the company switched to a new pricing mechanism that links local coal prices with global benchmarks. Power producers have protested, saying it only worsened problems created by hefty coal supply shortages.
“Our country is not in a position to increase power prices,” Coal Minister Sriprakash Jaiswal told reporters.
“When we made a switch to GCV system, there was perhaps an error by Coal India and prices for coal went up. It could have impacted the cost of power,” he added, referring to the new mechanism that links price to gross calorific value (GCV).
He said Coal India would review the new pricing mechanism based on the impact of the price rollback on its revenues in the January to March quarter.
The decision comes days after some of India’s business tycoons met Prime Minister Manmohan Singh seeking freer access to fuel, primarily coal, to deal with a worsening power crunch that has been a drag on growth.
India does not produce enough power to meet the needs of its fast-growing economy and the peak-hour deficit is about 12 percent.
Coal accounts for more than half of power generation but even though India has 10 percent of the world’s coal reserves, coal mines have struggled to get swifter environment clearances and land acquisition approvals.
Also stagnant domestic coal output, lower-than-expected gas production, the high cost of imported fuel and an inability to pass along the full cost of fuel price increases have thrown the business plans of power generators into disarray.
Former chairman NC Jha told reporters that while Coal India would persist with the GCV system, it was reworking prices to offset a projected 12.5 percent gain in prices. The revision will be effective from January 1.
Coal India would also have to shoulder a higher than expected burden from a planned new wage pact, Jha said, sending the company's shares down by as much as three percent.
The cost of coal rose this month after the company switched to a new pricing mechanism that links local coal prices with global benchmarks. Power producers have protested, saying it only worsened problems created by hefty coal supply shortages.
“Our country is not in a position to increase power prices,” Coal Minister Sriprakash Jaiswal told reporters.
“When we made a switch to GCV system, there was perhaps an error by Coal India and prices for coal went up. It could have impacted the cost of power,” he added, referring to the new mechanism that links price to gross calorific value (GCV).
He said Coal India would review the new pricing mechanism based on the impact of the price rollback on its revenues in the January to March quarter.
The decision comes days after some of India’s business tycoons met Prime Minister Manmohan Singh seeking freer access to fuel, primarily coal, to deal with a worsening power crunch that has been a drag on growth.
India does not produce enough power to meet the needs of its fast-growing economy and the peak-hour deficit is about 12 percent.
Coal accounts for more than half of power generation but even though India has 10 percent of the world’s coal reserves, coal mines have struggled to get swifter environment clearances and land acquisition approvals.
Also stagnant domestic coal output, lower-than-expected gas production, the high cost of imported fuel and an inability to pass along the full cost of fuel price increases have thrown the business plans of power generators into disarray.
Former chairman NC Jha told reporters that while Coal India would persist with the GCV system, it was reworking prices to offset a projected 12.5 percent gain in prices. The revision will be effective from January 1.
Coal India would also have to shoulder a higher than expected burden from a planned new wage pact, Jha said, sending the company's shares down by as much as three percent.
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