Coal pricing(Domestic and International)


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Coal pricing(Domestic and International)

  1. 1. Presented By-Anil KumarRahul SharmaHimanshu AggarwalMd. ImtiazCOAL PRICING (Domestic &International)
  2. 2.  The pricing of coal was controlled by the Central Government since 1945 under Colliery ControlOrder of 1945 under section 4 . The price notification had been amended in December 1995, January 1996 and April 1996 toenhance the differential between run of mine, steam and slack coal, to meet the increase intransportation charges . Following the recommendations of Bureau of Industrial Costs and Prices (BICP), a decision wastaken by the Government to deregulate the prices of all grades of coking coal and A, B, & Cgrades of non-coking coal and this decision was implemented with effect from 22.3.96. In March,1996,the Government gradually deregulatethe price of the various types and grades of coal. Later in 2000, the coal pricing was totallyderegulated after the Colliery Control Order, 2000and was decided by Coal India Limited. Under the Colliery Control Order, 2000 the CentralGovernment has no power to fix the prices of coal.Coal Pricing HistoryDate Category of Coal PricesDeregulatedMarch22,1996• Non-coking Grades: A,B&C• Coking Coal & Semi/WeeklyCoking CoalMarch12,1997• Non-coking Grades: D• Hard Coke & Soft Coke• CIL is allowed to revise the priceof the non-coking coal every 6months.January01,2000• CIL free to decide the price ofcoal.De-regulation Stages of Coal pricingSource: CIL
  3. 3.  The price of the coal depend on the input cost, mining cost, inflation and other factor. Since complete deregulation of pricing with effect from January 1, 2000, there have been fiverevisions in notified coal prices: (i)January 31, 2001, (ii) June 15, 2004, (iii) December 12, 2007,(iv) October 16, 2009, and (v) February 27, 2011. The average price increase was approximately 8.5%, 16.2%, 10.0% and 11.0%, respectively. On an annualized basis, the increase in the price of coal from January 2000 to March 31, 2010 was4.9% which is lower than average inflation rates in India in this period. The pricing of the coal is done on useful heat value (UHV) basis till Dec,2011 and from Jan,2012, thepricing mechanism changed to the Gross Calorific value(GCV). The Price regulation has obvious ramifications to competitiveness in the sector. However, the Ministry of Power has been writing to the Department of Coal that in the absence of aregulatory mechanism, the prevailing monopoly situation in the coal market will lead to arbitraryincrease in price levels affecting adversely the cost of generation and thereby electricity tariff whichhas direct impact on the national economy. The Ministry of Power has been pressing for appointing an independent regulatory body for pricedetermination. Several State Governments and State Electricity Boards/ Undertakings have alsoraised the issue. In view of the above, the Tariff Commission is being involved in pricing of coal for the Power Sectorand to suggest modalities for pricing of coal for other sectors.Coal Pricing History
  4. 4.  Coal Pricing ,at present , is fixed by coal ministry in consultation with Coal India Ltd.( CIL ) & Singareni Collieries Company ( SCCL ) . The price are determined on thebasis of cost incurred in Coal Production from different mines.Coal Pricing
  5. 5.  The expert committee on Integrated Energy Policy headed by Kirit Parikh,has recommended setting up of an independent Coal Regulator to replacegovernment committees for determine coal prices for different userindustries.
  6. 6. STEP-I: An weighted average price (WAP) calculation for allmines (UG/OC) together, as applicable.WAP is calculated by taking sample opencast andunderground mines in a certain ratio and taking averagecost for opencast mine and corresponding cost forunderground minesGuidelines of BICP to determine Coal Price
  7. 7. STEP II: Addition of other cost elements to WAP.Other cost elements are Interest on Workingcapital, Interest on Term Loan; and post tax returnon equity. These element are calculated on the NetBlock Per Tone basis.STEP III: Summation of I & II above and Distribution of theaverage price among various grades.Guidelines of BICP to determine Coal Price
  8. 8. STEP-IV: Normative correction of the costs based on normsto derive fair prices developed by BICP(Bureau ofIndustrial Costs and Prices ) or CMPDIL (CentralMine Planning & Design Institute Limited). To achieve uniformity of prices among different mines ofsame Coal Companies, BICP used norms for pricefinalizations (its own norms as also CMPDI norms) For this purpose Normative levels of production, StrippingRatio, Annual Capacity, Interest, Power consumption,Consumption of explosives and detonators, Requirementof Working capital etc were prescribed.Guidelines of BICP to determine Coal Price
  9. 9. STEP V: Grade wise distribution of cost & price fixationfor different Grades of Coal and Classes ofMines.Guidelines of BICP to determine Coal Price
  10. 10. Example for Indian Coal pricing447 476 507 5202254258426602796660 715 738 745FY08 FY09 FY10 FY11Open Cast Under Ground Over AllUnder ground mining is 5 times costlier thanopen cast mining.Given that 90% of coal production is open-castonly & the rest from under-ground.The average unit cost of coal production forCIL comes out to be Rs.745.06(app) per tonnein FY11.This is just an example and while calculationother factors are also been considered asexplained earlier in the presentation.The flaw in the calculation here is thatassumption made here of 10% fromunderground mining is normally lower thanthat.This shows that the maximum differencebetween assumed and actual undergroundmining is the extra profit of CIL.Cost of Coal Production by CIL (in Rs./Tonne)Source: CIL & Infraline Research
  11. 11. The price of coal delivered shall be –A. Basic Price+B. Other Charges+C. Statutory ChargesTypical Price Clause of Coal Supply Agreement
  12. 12. I. EXISTING PRICING STRUCTUREUnder price notificationsORII. COAL PRICE UNDER DE-CONTROL REGIMEwith price escalation provisionA. Basic Price of Coal
  13. 13. i. Transportation Charges+ii. Sizing/Crushing Charges+iii. Rapid Loading Charge+iv . Washing ChargesB. Other Charges
  14. 14.  Where coal is transported by the Seller beyond the distance of 3 Kms from the pit-head to the delivery/unloading point. The Purchaser shall pay transportation charges as applicable from time to time. Coal is classified in the (sub-section 150) of the freight charges of the Indianrailways. The charges for the coal transportation as per the distance is as shownbelow:1. Transportation ChargesDistance (KM) Class 150 (Rs/Ton)1-100 150.20101-125 177.20126-150 206.00151-175 230.90501-550 631.20551-600 685.101001-1100 1214.301101-1200 1320.203001-3500 2902.70Source: Ministry of Railways
  15. 15.  Where the coal is crushed by mechanical means for limiting the top size to200mm – 250mm.- depending on Coal Agreement. The Purchaser shall pay sizing/crushing charges as applicable from time totime. Sizing charges of Rs. 35/- per tonne for limiting the top size of coal to 250 mmby mechanical or manual means, are included in the run of mine price. However, if top sizes further limited to smaller size e.g. 100/50 mm, then Rs.55/- per tonne may be levied.2. Sizing/Crushing Charges
  16. 16.  Where coal is loaded through Rapid Loading System either into IndianRailways system or into the Purchaser’s own MGR. Purchaser shall pay Rapid Loading charges as applicable from time to time. The price of Rapid Loading of coal is determined by mutual agreementbetween the two party. (Coal producer and Coal consumer). Where coal is loaded, either into Indian Railways system or into thepurchasers’ own system of transport, through high capacity loading systemwith a nominal capacity of 3500 tonnes per hour or more, additional charge ofRs.20.00 per tonne shall be levied for such loading.3. Rapid Loading Charges
  17. 17. 4. Washing Charges It is the process of cleaning of coal prior to it’s use. It includes sizing, removal of rock originating from mining roof, removal of ashand sulfur minerals, drying to remove surface moisture and blending of differentcoals to achieve desired physical and chemical properties. The cost of washing of coal varies from one playersto other player.the approx cost of coal washing is aroundRs. 120/ton.
  18. 18.  The “Statutory Charges” shall comprise- royalties; (A+B*Run of Mine Price)Where A =70 and B= 5% of run of mine price of coal National Clean Energy Cess; (Rs 50 Fixed) Stowing Exercise Duties (SED); for developing of abandoned mines ; (Rs. 20 Fixed) CST ;(@ 4% of ROM Price of coal);Exercise Duty; (@5% of ROM coal); levies etc., if any, It shall be payable by the Purchaser Subject to :Provisions of relevant statute ;not included in the basic priceSTATUTORY CHARGES
  19. 19. Yearly Escalated Price of coal in terms of Rs /tonne may be determined by the followingformula:Let P0 = Price of Coal on a mutually agreed date to be termed as “Base Date” (from whichdate price escalation to be calculated for the first time or any subsequent times)P1= Escalated price of Coal to be calculated annually on the date of revision.P1 = P0  dP1  dP2wheredP1 = Price escalation Part-1Applicable on components of cost of Coal comprising : Salaries & Wages, Explosives,Power, Other items including Stores & Spares which are linked to published indices/SEB tariff notificationsdP2 = Price escalation Part –2Applicable on components of cost of Coal comprising : Depreciation, Interest and Pre-tax return which are based on Net Block per tonne of Coal and are related to thecapacityFORMULA FOR COAL PRICE ESCALATION
  20. 20. Component Symbol Rs/ tonne(effectivefrom 1.4.1997)Rs/ tonne(effectivefrom1.4.2001)Rs/ tonne(effectivefrom01.01.2012)Basic Raw coal Price (BP)+ Crushing Charges (CR)PR 332204312060055Statutory Charges on Raw Coal (Ro)=Royalty+ (SE)= SEDPSr 503.50503.507010Add: Adjustment due to YieldFactor (Yc)Extra 83.78 154.97-Total Raw Coal Component Price  489.28 659.47 From CIL,SCCLWashing charges =+ Wage Revision AdjustmentPW 225.72 268.48+2.04-Total Price of Washed Coal (P) 715.00 930.00-COAL PRICING METHODOLOGY
  21. 21. Pricing effective from Jan 2012 (1/2)Grade GCV Bands(Kcal/Kg)Power utilities (includingIPPs),fertilizers,Defensesector (Rs./Te)Sector other than Powerutilities (including IPPs ),fertilizers,Defensesector(Rs./Te)G1 Exceeding 7000 * *G2 Exceeding 6700 and not exceeding70004870 4870G3 Exceeding 6400 and not exceeding67004420 4420G4 Exceeding 6100 and not exceeding64003970 3970G5 Exceeding 5800 and not exceeding61002800 2800G6 Exceeding 5500 and not exceeding58001450 1960G7 Exceeding 5200 and not exceeding55001270 1720Pit head Run On Mine non-coking Coal Prices as per CIL effective from Jan 1,2012 Based on GCVNote *:1.For GCV exceeding 7000 Kcal/Kg, the price shall be increase by Rs.150/-per tonne over & above price for GCVband (6700-7000) Kcal/Kg, for increase in GCV by every 100 Kcal/Kg.2.For WCL,there shall be 10% add on over & above price mentioned for GCV bands not exceeding 5800Kcal/Kgand below. Source: CILSwitching to GCV mechanism would characterize coal in more efficient manner
  22. 22. Grade GCV Bands(Kcal/Kg)Power utilities (includingIPPs),fertilizers,Defencesector(Rs./Te)Sector other than Powerutilities (includingIPPs),fertilizers,Defencesector(Rs./Te)G8 Exceeding 4900 and not exceeding52001140 1540G9 Exceeding 4600 and not exceeding4900880 1180G10 Exceeding 4300 and not exceeding4600780 1050G11 Exceeding 4000 and not exceeding4300640 870G12 Exceeding 3700 and not exceeding4000600 810G13 Exceeding 3400 and not exceeding3700550 740G14 Exceeding 3100 and not exceeding3400500 680G15 Exceeding 2800 and not exceeding3100460 620G16 Exceeding 2500 and not exceeding2800410 550G17 Exceeding 2200 and not exceeding2500360 490Pricing effective from Jan 2012 (2/2)
  23. 23. RAIL MODE - ZSNT PRICES W.E.F.15.06.2012CHPBASICSIZINGBASICTOTALPremiumROYALTYONBASICROMPRICESEDROYALTY ONPREMIUMENGINESHNTGCHGS+ADDL.CRFLSSTCFORESTPERMITFEEPWBFSCCLEANENERGYCESSEDTAXABLAEAMOUNTVAT5%TOTALPRICEWITHVAT5%CST2%TOTALPRICEWITHCST2%RCHPG7CRR1,840.0060.001,900.00 570 257.6 10 79.8 15 15 83 10 0 48 50179.303,217.70160.893,378.5964.353,282.06RCHPG13CRR 69060.00750.00 300 96.6 10 42 15 15 83 10 0 48 5082.181,501.7875.091,576.8630.041,531.81YLDCHPG13CRR 69060.00750.00 300 96.6 10 42 15 15 96 10 0 48 5082.961,515.5675.781,591.3330.311,545.87Coal Transportation from WCL Site(A Screenshot)
  24. 24. INTERNATIONAL COAL PRICING Quite Deregulated Market across the world. Various Coal Price Indices are used across the world tobenchmark their cost of production and thereby making itcompetitive with the other prominent markets across theworld.
  25. 25. Market StructureDemandEU 25Eastern EuropeMediterranean areaNorth, Central andSouth AmericaMajor suppliersColombiaSARussiaPolandVenezuelaUSAMajor suppliersAustraliaIndonesiaChinaRussiaVietnamDemandJapanSouth KoreaTaiwanIndiaChinaPrice FormationMarket leaders•SA•Colombia•RussiaMarginal suppliers•Poland•USA•AustraliaFOB pricesFreight RatesCurrency relationsBuyer and seller’s marketMarket leaders•Australia•Indonesia•ChinaMarginal suppliers•SA•RussiaAtlantic market Pacific marketCoal Transportation across the Globe
  26. 26. INTERNATIONAL COAL INDICESAPI 2 Index (an average of the Argus cif Rotterdam assessment andMcCloskey’s northwest European steam coal marker)-imported intonorthwest EuropeAPI 4 Index (an average of the Argus fob Richards Bay assessment and McCloskey’s fobRichards Bay marker.) - exported out of Richards Bay, South Africa.API 5 Index(an average of the Argus fob Newcastle 5,500 kcal/kg assessmentand the equivalent from IHS McCloskey.)-exports of 5,500 kcal/kg NAR (net asreceived), high-ash coal from AustraliaAPI 6 Index (an average of the Argus fob Newcastle 6,000 kcal/kg assessment and theequivalent from IHS McCloskey.) -API 8 Index (an average of the Argus 5,500 kcal/kg cfr south China priceassessment, and the IHS McCloskey/Xinhua Infolink south China marker) -price for 5,500 kcal/kg NAR coal delivered to south China.The ICI (Indonesian Coal Index) reflects the spot price of five key grades of Indonesiancoal — 6,500, 5,800, 5,000, 4,200 and 3,400 kcal/kg GAR
  27. 27.  Ensure price revisions. Suggest measures for Setting Coal prices. Regulate trading margins. Ensure that price discovery through e- auctions is free of distortions. Ensure coal supply to the power sectors under commercially drivenLong – term Fuel Supply & Transport Agreements ( FSTAs)Functions or Need of Regulators
  28. 28.  To deliver a sustained growth of 8% through 2031, Indiawould, in the very least, need to grow its primary energy supplyby 3 to 4 times and electricity supply by 5 to 7 times of today’sconsumption. By 2031-32 power generation capacities would have to increaseto 778095 MW and annual coal requirement would be 2040MTFuture Prospects of Coal in India