India: Ministry Rolls Out National Coal Index

Taking a major leap towards initializing commercial coal mining; the ministry has finalized ‘National Coal Index’ to be used for determining revenue share of auctioned mines on the basis of representative prices, which have been formulated by taking into account various price sources.

Methodology: The index has been developed by Indian Statistical Institute, by computing weighted combination of three price sales channels viz. (a) notified price of CIL, WCL and SCCL, (b) auction price of CIL, and (c) imported coal price.

Thereafter, these are categorized as per five sub-sectors, in order to derive the individual grade-wise prices for non-coking and coking coal. The weights, which are positive fractions that sum up to one, represent the importance given to different channels.

Reference weightage of sub-sectors for each sales channel has been tabulated below, based on the price levels seen during FY18:

It is pertinent to note that the coal index would be compiled on a bi-monthly basis, assessing the prices for the particular period as per their weightage.

Taking into consideration the relevant data for Mar’20, the ministry has floated the grade-wise prices which would form the basis for tranche-I of coal mine auction for commercial mining.

Reforms to provide much needed boost:

Auctions conducted for coal block sales have fetched subdued response of late, which were ultimately terminated due to lesser participation.

As a matter of fact, the allotment of five coal blocks finalized under the previous tranche of auction was seen after a gap of four years, where a total of 27 blocks were offered for sale.

Moreover, these allocated blocks were rather sold at very low bids in comparison to the prices that have been derived under NCI.

Nevertheless, eliminating the high coal prices involved, inclusion of major incentives aimed to maximize profit earning of the successful bidders are likely to raise participation the forthcoming auction for commercial mining.