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Retrograde practice

The current pricing structure of coal in India de-incentivises quality in favour of quantity pushing productive practices like coal washing to near relegation, writes Partha Sarathi Bhattacharyya

Retrograde practice
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The bulk of Indian coal is high in ash and low in Gross Calorific Value (GCV). The method of mining is largely (93 per cent) opencast. Drilling and blasting of Over Burden (OB) is an integral part of such mining process. Even in coal, drilling and blasting are used except where surface miners are deployed. As a result, contamination of coal by OB is unavoidable. This poses a serious challenge to the coal producer in realising the declared grade of the coal seam and burdens the coal user with a higher cost of handling and disposal of ash. In addition, the boilers are likely to face higher wear and tear and unplanned outages due to inconsistency of size and GCV of coal used.

World over, the standard practice is to wash coal before supply. This holds even for better quality coal mined underground. The writer had the opportunity of visiting a large 10 million tonne per annum (mtpa) underground mine with Powered Support Longwall and sublevel caving near Beijing. The coal quality, though good, was belt conveyed to a washery adjacent to the mine and washed coal supplied to consumers.

That improving quality of coal in India requires washing is known for decades. The quality disputes centred on the supply of Run of Mine (ROM) coal, its adverse consequences both on the coal producer and consumer are well documented. Complaints made by major gencos to Competition Commission of India (CCI) and the staggering penalties imposed on CIL is recent history. The payment for coal supplies to gencos are made on the basis of third party analysis of quality. As a result, the brunt of dilution in coal quality arising from mining practices, largely unavoidable, is borne entirely by the coal producer.

So why is the coal producer not adopting washing prior to supply? The answer lies, at least partly, to the pricing structure of power grade coal in the GCV range of 3,100 to 4,900 KCal/kg. Let us have a deep dive.

Globally, the price of coal in energy terms, say Rs/ GCal, rises as the GCV increases. The latest FOB price of thermal coal in South Africa and Indonesia converted to Rs/GCal at the exchange rate of 1 US$=Rs 75, reveals the following trend:

FOB South Africa:

4,800 KCal/kg - Rs 540/GCal

5,500 KCal/kg - Rs 600/GCal

6,000 KCal/kg - Rs 700/GCal

Increase in price of coal in energy terms is Rs 160 (700-540) for rise in GCV by 1200 KCal/Kg or by Rs 13.33 for every 100 KCal/kg rise in GCV.

FOB Indonesia:

3,800 KCal/kg - Rs 430/GCal

4,200 KCal/kg - Rs 520/GCal

5,000 KCal/kg - Rs 620/GCal

5,900 KCal/kg - Rs 660/GCal

Increase in price of coal in energy terms is Rs 230 (660-430) for rise in GCV by 2,100 KCal/Kg or by Rs 11 for every 100 KCal/kg rise in GCV.

In contrast, the Indian coal price after the last revision in coal price presents the following trend: Indian Power Grade coal at pithead after revision in 2018:

3,300 KCal/kg – Rs 230/GCal

4,900 KCal/kg – Rs 230/GCal

Thus, the pricing structure has taken away all incentive for quality improvement, not to even mention washing. In fact, the incentive, if at all is for producing more volume at the cost of quality since the deduction on account of grade slippage will be fully offset by the increased quantity.

In a country where coal quality is inherently poor and coal washing needs to be adopted as a practice before use, the prevalent pricing structure is clearly retrograde. It should be replaced by a structure that rewards higher GCV (and reciprocally, punishes supply of lower GCV coal) by at least Rs 10 for every 100 KCal/kg rise/fall. This is expected to trigger efforts for quality improvement as well as setting up washeries by the coal producer and act as a severe deterrent for the supply of coal that suffers slippage on analysis.

Views expressed are personal

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