In a major change to the coal pricing policy,the government is working on a cross-subsidy scheme that would encourage power producers with assured domestic linkages to switch up to 20 per cent of their requirements to imported coal and free domestic supplies for other plants. In return,these power producers would get a 5 per cent discount on the government notified price for the coal volumes that they import. In essence,the imported coal would be 5 per cent cheaper than what these power producers pay for domestic coal. The difference between the import price and the 95 per cent of the notified price (to be charged from the producers) will have to be borne by Coal India Ltd, says the proposal circulated to the ministries of coal and power. This discount or subsidy would be available for all pre-2009 power producers who are assured 90 per cent of their annual contracted quantity (ACQ) through domestic supplies under notified rate. They currently account for 275 million tonnes of domestic coal. The sacrifice,assumed at 20 per cent,by pre-2009 plants could free 55 million tonnes for use by post-2009 power producers who have a fuel supply agreement with state-run coal companies. Post-2009 producers will get 60-70 per cent of their ACQ under proposed solution They should be charged notified price for the allotted domestic coal plus a premium for the imported coal used to reduce domestic coal allotment to pre-2009 producers, says the proposal penned by chief economic adviser Raghuram Rajan. All imports by post-2009 producers would thus be charged at landed price and the discount sustained by Coal India would be recovered from them through a 16 per cent premium,says the proposal. This (discount) will be spread over 157 million tonnes of domestic coal sold to post-2009 producers. So domestic coal will be sold at 16 per cent premium to the notified price to post-2009 producers, it says. The objective of the proposal is to optimise the use of domestic coal. Rajans argument is that the freed domestic coal will have a multiplier effect because it can be used to blend with more imported coal,thereby expanding Indias power production base substantially. Currently,pre-2009 producers have no incentive to blend imported coal as it is more costly and the boilers are designed differently. The discount would incentivise them to blend as much imported coal as possible,thereby freeing domestic coal for allotment to other domestic producers,argues the proposal. The previous price pooling recommendation of averaging prices of imported and domestic coal for all producers was shot down by the Cabinet Committee on Economic Affairs last April due to sharp opposition to the scheme by states and public sector power producers.
