The document discusses the history and process of coal pricing in India. It begins by explaining that coal pricing was historically controlled by the central government but has gradually been deregulated over time. It then outlines the multi-step process that is currently used to determine coal prices, which involves calculating weighted average costs, adding other cost elements, distributing the average price among coal grades, and applying normative corrections. The summary also notes that coal prices are now set by coal companies like Coal India in consultation with the coal ministry and includes periodic escalations.

1. Presented By-
Anil Kumar
Rahul Sharma
Himanshu Aggarwal
Md. Imtiaz
COAL PRICING (Domestic &
International)

2.  The pricing of coal was controlled by the Central Government since 1945 under Colliery Control
Order of 1945 under section 4 .
 The price notification had been amended in December 1995, January 1996 and April 1996 to
enhance the differential between run of mine, steam and slack coal, to meet the increase in
transportation charges .
 Following the recommendations of Bureau of Industrial Costs and Prices (BICP), a decision was
taken by the Government to deregulate the prices of all grades of coking coal and A, B, & C
grades of non-coking coal and this decision was implemented with effect from 22.3.96.
 In March,1996,the Government gradually deregulate
the price of the various types and grades of coal.
 Later in 2000, the coal pricing was totally
deregulated after the Colliery Control Order, 2000
and was decided by Coal India Limited.
 Under the Colliery Control Order, 2000 the Central
Government has no power to fix the prices of coal.
Coal Pricing History
Date Category of Coal Prices
Deregulated
March
22,1996
• Non-coking Grades: A,B&C
• Coking Coal & Semi/Weekly
Coking Coal
March
12,1997
• Non-coking Grades: D
• Hard Coke & Soft Coke
• CIL is allowed to revise the price
of the non-coking coal every 6
months.
January
01,2000
• CIL free to decide the price of
coal.
De-regulation Stages of Coal pricing
Source: CIL

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 five
revisions 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 was
4.9% 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, the
pricing 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 a
regulatory mechanism, the prevailing monopoly situation in the coal market will lead to arbitrary
increase in price levels affecting adversely the cost of generation and thereby electricity tariff which
has direct impact on the national economy.
 The Ministry of Power has been pressing for appointing an independent regulatory body for price
determination. Several State Governments and State Electricity Boards/ Undertakings have also
raised the issue.
 In view of the above, the Tariff Commission is being involved in pricing of coal for the Power Sector
and to suggest modalities for pricing of coal for other sectors.
Coal Pricing History

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 the
basis of cost incurred in Coal Production from different mines.
Coal Pricing

5.  The expert committee on Integrated Energy Policy headed by Kirit Parikh,
has recommended setting up of an independent Coal Regulator to replace
government committees for determine coal prices for different user
industries.

6. STEP-I: An weighted average price (WAP) calculation for all
mines (UG/OC) together, as applicable.
WAP is calculated by taking sample opencast and
underground mines in a certain ratio and taking average
cost for opencast mine and corresponding cost for
underground mines
Guidelines of BICP to determine Coal Price

7. STEP II: Addition of other cost elements to WAP.
Other cost elements are Interest on Working
capital, Interest on Term Loan; and post tax return
on equity. These element are calculated on the Net
Block Per Tone basis.
STEP III: Summation of I & II above and Distribution of the
average price among various grades.
Guidelines of BICP to determine Coal Price

8. STEP-IV: Normative correction of the costs based on norms
to derive fair prices developed by BICP(Bureau of
Industrial Costs and Prices ) or CMPDIL (Central
Mine Planning & Design Institute Limited).
 To achieve uniformity of prices among different mines of
same Coal Companies, BICP used norms for price
finalizations (its own norms as also CMPDI norms)
 For this purpose Normative levels of production, Stripping
Ratio, Annual Capacity, Interest, Power consumption,
Consumption of explosives and detonators, Requirement
of Working capital etc were prescribed.
Guidelines of BICP to determine Coal Price

9. STEP V: Grade wise distribution of cost & price fixation
for different Grades of Coal and Classes of
Mines.
Guidelines of BICP to determine Coal Price

10. Example for Indian Coal pricing
447 476 507 520
2254
2584
2660
2796
660 715 738 745
FY08 FY09 FY10 FY11
Open Cast Under Ground Over All
Under ground mining is 5 times costlier than
open cast mining.
Given that 90% of coal production is open-cast
only & the rest from under-ground.
The average unit cost of coal production for
CIL comes out to be Rs.745.06(app) per tonne
in FY11.
This is just an example and while calculation
other factors are also been considered as
explained earlier in the presentation.
The flaw in the calculation here is that
assumption made here of 10% from
underground mining is normally lower than
that.
This shows that the maximum difference
between assumed and actual underground
mining is the extra profit of CIL.
Cost of Coal Production by CIL (in Rs./Tonne)
Source: CIL & Infraline Research

11. The price of coal delivered shall be –
A. Basic Price
+
B. Other Charges
+
C. Statutory Charges
Typical Price Clause of Coal Supply Agreement

12. I. EXISTING PRICING STRUCTURE
Under price notifications
OR
II. COAL PRICE UNDER DE-CONTROL REGIME
with price escalation provision
A. Basic Price of Coal

13. i. Transportation Charges
+
ii. Sizing/Crushing Charges
+
iii. Rapid Loading Charge
+
iv . Washing Charges
B. Other Charges

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 Indian
railways. The charges for the coal transportation as per the distance is as shown
below:
1. Transportation Charges
Distance (KM) Class 150 (Rs/Ton)
1-100 150.20
101-125 177.20
126-150 206.00
151-175 230.90
501-550 631.20
551-600 685.10
1001-1100 1214.30
1101-1200 1320.20
3001-3500 2902.70
Source: Ministry of Railways

15.  Where the coal is crushed by mechanical means for limiting the top size to
200mm – 250mm.- depending on Coal Agreement.
 The Purchaser shall pay sizing/crushing charges as applicable from time to
time.
 Sizing charges of Rs. 35/- per tonne for limiting the top size of coal to 250 mm
by 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.  Where coal is loaded through Rapid Loading System either into Indian
Railways 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 agreement
between the two party. (Coal producer and Coal consumer).
 Where coal is loaded, either into Indian Railways system or into the
purchasers’ own system of transport, through high capacity loading system
with a nominal capacity of 3500 tonnes per hour or more, additional charge of
Rs.20.00 per tonne shall be levied for such loading.
3. Rapid Loading Charges

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 ash
and sulfur minerals, drying to remove surface moisture and blending of different
coals 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 around
Rs. 120/ton.

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 price
STATUTORY CHARGES

19. Yearly Escalated Price of coal in terms of Rs /tonne may be determined by the following
formula:
Let P0 = Price of Coal on a mutually agreed date to be termed as “Base Date” (from which
date 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  dP2
where
dP1 = Price escalation Part-1
Applicable on components of cost of Coal comprising : Salaries & Wages, Explosives,
Power, Other items including Stores & Spares which are linked to published indices/
SEB tariff notifications
dP2 = Price escalation Part –2
Applicable 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 the
capacity
FORMULA FOR COAL PRICE ESCALATION

20. Component Symbol Rs/ tonne
(effective
from 1.4.
1997)
Rs/ tonne
(effective
from
1.4.200
1)
Rs/ tonne
(effective
from
01.01.2
012)
Basic Raw coal Price (BP)
+ Crushing Charges (CR)
PR 332
20
431
20
600
55
Statutory Charges on Raw Coal (Ro)
=Royalty
+ (SE)= SED
PSr 50
3.50
50
3.50
70
10
Add: Adjustment due to Yield
Factor (Yc)
Extra 83.78 154.97
-
Total Raw Coal Component Price  489.28 659.47 From CIL,SCCL
Washing charges =
+ Wage Revision Adjustment
PW 225.72 268.48
+2.04
-
Total Price of Washed Coal (P) 715.00 930.00
-
COAL PRICING METHODOLOGY

21. Pricing effective from Jan 2012 (1/2)
Grade GCV Bands(Kcal/Kg)
Power utilities (including
IPPs),fertilizers,Defense
sector (Rs./Te)
Sector other than Power
utilities (including IPPs ),
fertilizers,Defense
sector(Rs./Te)
G1 Exceeding 7000 * *
G2 Exceeding 6700 and not exceeding
7000
4870 4870
G3 Exceeding 6400 and not exceeding
6700
4420 4420
G4 Exceeding 6100 and not exceeding
6400
3970 3970
G5 Exceeding 5800 and not exceeding
6100
2800 2800
G6 Exceeding 5500 and not exceeding
5800
1450 1960
G7 Exceeding 5200 and not exceeding
5500
1270 1720
Pit head Run On Mine non-coking Coal Prices as per CIL effective from Jan 1,2012 Based on GCV
Note *:1.For GCV exceeding 7000 Kcal/Kg, the price shall be increase by Rs.150/-per tonne over & above price for GCV
band (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/Kg
and below. Source: CIL
Switching to GCV mechanism would characterize coal in more efficient manner

22. Grade GCV Bands(Kcal/Kg)
Power utilities (including
IPPs),fertilizers,Defence
sector(Rs./Te)
Sector other than Power
utilities (including
IPPs),fertilizers,Defence
sector(Rs./Te)
G8 Exceeding 4900 and not exceeding
5200
1140 1540
G9 Exceeding 4600 and not exceeding
4900
880 1180
G10 Exceeding 4300 and not exceeding
4600
780 1050
G11 Exceeding 4000 and not exceeding
4300
640 870
G12 Exceeding 3700 and not exceeding
4000
600 810
G13 Exceeding 3400 and not exceeding
3700
550 740
G14 Exceeding 3100 and not exceeding
3400
500 680
G15 Exceeding 2800 and not exceeding
3100
460 620
G16 Exceeding 2500 and not exceeding
2800
410 550
G17 Exceeding 2200 and not exceeding
2500
360 490
Pricing effective from Jan 2012 (2/2)

23. RAIL MODE - ZSNT PRICES W.E.F.15.06.2012
CHP
BASI
C
SIZI
NG
BASI
C
TOTA
L
Prem
ium
ROYA
LTY
ON
BASIC
ROM
PRICE
SED
ROYAL
TY ON
PREMI
UM
ENGI
NE
SHNT
G
CHGS
+
ADDL.
CR
FLS
STC
FORE
ST
PERM
IT
FEE
PWBFSC
CLEA
N
ENE
RGY
CES
S
ED
TAXAB
LAE
AMOU
NT
VAT
5%
TOTA
L
PRIC
E
WITH
VAT
5%
CST
2%
TOTA
L
PRIC
E
WITH
CST
2%
RCHP
G7
CRR
1,840.
00
60.0
0
1,900.
00 570 257.6 10 79.8 15 15 83 10 0 48 50
179.
30
3,217.7
0
160.
89
3,378
.59
64.3
5
3,282.
06
RCHP
G13
CRR 690
60.0
0
750.0
0 300 96.6 10 42 15 15 83 10 0 48 50
82.1
8
1,501.7
8
75.0
9
1,576
.86
30.0
4
1,531.
81
YLD
CHP
G13
CRR 690
60.0
0
750.0
0 300 96.6 10 42 15 15 96 10 0 48 50
82.9
6
1,515.5
6
75.7
8
1,591
.33
30.3
1
1,545.
87
Coal Transportation from WCL Site(A Screenshot)

24. INTERNATIONAL COAL PRICING
 Quite Deregulated Market across the world.
 Various Coal Price Indices are used across the world to
benchmark their cost of production and thereby making it
competitive with the other prominent markets across the
world.

25. Market Structure
Demand
EU 25
Eastern Europe
Mediterranean area
North, Central and
South America
Major suppliers
Colombia
SA
Russia
Poland
Venezuela
USA
Major suppliers
Australia
Indonesia
China
Russia
Vietnam
Demand
Japan
South Korea
Taiwan
India
China
Price Formation
Market leaders
•SA
•Colombia
•Russia
Marginal suppliers
•Poland
•USA
•Australia
FOB prices
Freight Rates
Currency relations
Buyer and seller’s market
Market leaders
•Australia
•Indonesia
•China
Marginal suppliers
•SA
•Russia
Atlantic market Pacific market
Coal Transportation across the Globe

26. INTERNATIONAL COAL INDICES
API 2 Index (an average of the Argus cif Rotterdam assessment and
McCloskey’s northwest European steam coal marker)-imported into
northwest Europe
API 4 Index (an average of the Argus fob Richards Bay assessment and McCloskey’s fob
Richards Bay marker.) - exported out of Richards Bay, South Africa.
API 5 Index(an average of the Argus fob Newcastle 5,500 kcal/kg assessment
and the equivalent from IHS McCloskey.)-exports of 5,500 kcal/kg NAR (net as
received), high-ash coal from Australia
API 6 Index (an average of the Argus fob Newcastle 6,000 kcal/kg assessment and the
equivalent from IHS McCloskey.) -
API 8 Index (an average of the Argus 5,500 kcal/kg cfr south China price
assessment, 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 Indonesian
coal — 6,500, 5,800, 5,000, 4,200 and 3,400 kcal/kg GAR

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 driven
Long – term Fuel Supply & Transport Agreements ( FSTAs)
Functions or Need of Regulators

28.  To deliver a sustained growth of 8% through 2031, India
would, in the very least, need to grow its primary energy supply
by 3 to 4 times and electricity supply by 5 to 7 times of today’s
consumption.
 By 2031-32 power generation capacities would have to increase
to 778095 MW and annual coal requirement would be 2040
MT
Future Prospects of Coal in India

29. PRICE DIFFERENTIAL BETWEEN INDIAN AND INTERNATIONAL COAL