The proposed move will result in an increase in the cost of the raw material and a rise in power tariffs
The government today said it is considering to price domestic coal on par with global rates, a move which may increase the cost of the raw material and lead to a rise in power tariff, reports PTI.
Both the coal ministry and the Planning Commission have favoured using imported coal price as benchmark for domestic coal.
"In the recent price revision exercise, efforts have been made to price higher grades of non-coking coal of Eastern Coalfield Ltd closer to import parity price... It needs to be carried further," coal minister Sriprakash Jaiswal told PTI.
Domestic thermal coal, consumed by power companies to produce power, is as much as 50% cheaper than the imported coal.
Globally, coal prices start from $45 (nearly Rs2,000) per tonne. The government had hiked coal prices by an average 11% last year to Rs448-Rs2,500 a tonne.
Coal is the primary source of energy and the power sector alone consumes 85% of the 500 million tonne produced in the country. Other consumers include cement and steel makers.
"In Coal India Ltd (CIL), for pricing of coking coal, import parity price is taken as benchmark and adjusted for quality," Mr Jaiswal said.
Planning Commission deputy chairman Montek Singh Ahluwalia termed the need for parity in prices as unavoidable in the wake of the country's increasing coal import needs.
"I would say that (import price parity) is also necessary... If you are surplus...you can subsidise...but we are coal importers ...our assessment shows that in the Twelfth Plan import of coal would increase substantially. So I think linking (coal prices with global prices) is unavoidable," Mr Ahluwalia said.
He said states should ensure the price parity and also advocated shifting to this system for other sources of energy.
Increase in coal prices may lead to increase the power tariff by up to Rs1.50 per unit, according to industry estimates.
"The essence of the Integrated Energy Policy statement was that it (the price policy) should be consistent across different sources of energy," Mr Ahluwalia added.
"Go to any economist and say that in the world of energy scarcity...you want to get energy security...you follow any policy other than linking energy prices with world prices ...especially when you are energy importer...then they would tell you that this is not the correct thing to do," he said.
Earlier this month, power minister Sushil Kumar Shinde had said that power tariff could go up by about Re1 per unit (kWh) owing to the government's decision to more than double gas prices to $4.20 per mmBtu.
"Import price parity will increase the price of power significantly. Almost 65%-75% of cost of generation is because of coal. Cost of fuel is pass through. If it goes up it will be passed to the consumers. If in case it is not passed on then the subsidy would rise," Ernst & Young executive director (business advisory), Arun Shrivastava said.
State-owned CIL, which meets over 80% dry fuel requirement of the country, produced 431.5 million tonnes of coal in the last fiscal. Still the demand-supply gap in the country is pegged at around 100 million tonnes.