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Coal India thrusts high-quality fuel on non-power companies

KOLKATA: State-owned monopoly Coal IndiaBSE -0.08 % (CIL) has asked non-power and captive power consumers to compulsorily buy at least 25% higher grade coal if they want to renew their fuel supply agreement with the company. One tonne of higher grade coal will be counted as 1.5 tonne of lower grade and the contracted supply quantity will thus be reduced accordingly. 

Non-power consumers include cement, paper and all other manufacturers who do not produce thermal power for sale. Premium grade coal would have an energy content ranging between between 6,400 GCV (gross calorific value) and 7000 GCV. GCV is a measure of energy content in a kilogram of coal which gets released when burnt. Non premium includes anything less than 6,400 GCV. 

The move follows CIL's inability to find takers for this higher grade coal, the price of which is higher than its imported variety, and the company supplies a total 57 million tonnes to the non-power and captive consumers. 

"CIL reduced prices of this category recently, yet buyers are finding the international variety a shade cheaper and better in quality," a CIL official said on condition of anonymity. 

CIL has already issued a notification, which mentions that the decision was taken at the last board meeting and all non-power and captive coal consumers will either have to take this coal, or if they don't, this volume will be deemed delivered and CIL will supply that much less to consumers. 

"By default, higher grade coal is meant for sectors like cement and sponge iron. Therefore, this coal should be taken by them. These sectors are non-regulated, therefore we are not obligated to supply coal at a cheaper rate to these companies. Their product prices are market-driven, hence they should not have an issue," CIL chairman 
S Narsing Rao said. 

RP Gupta, chairman and managing director of 
Shiva CementBSE 4.58 %, a joint venture of ACC Cement, said, "Any additional burden on industrial consumer will be ultimately loaded back on the public only through cost of production and inflationary condition shall continue." 

"Under normal circumstances, replacement in supply of coal from lower to higher grade should be acceptable provided the cost is not high. High grade coal is generally not available from same mines but to be transported from distant ones. Therefore, landed cost may become higher in most cases. 

"Small and medium consumers will have to transport it by road and road freight cost is prohibitive in India. In most cases, quality of domestic coal is much inferior in comparison to declared quality and therefore cost in terms of heat value (GCV) gets inflated," Gupta added.