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The objection by eight states to the price pooling arrangement planned by Coal India (CIL) to keep an uninterrupted supply of coal to power plants introduces an additional layer of complication in the sector.
The eight coal rich states do not want a pooling mechanism claiming it will take away their location advantage. Power plants will not find any advantage to locate themselves in the states, they argue.
Pooled coal incidentally, refers to the supply of the mineral that CIL will make to downstream utilities by blending imported coal with domestic supplies. Since the gap between domestic supply and demand is increasing the role of this pooled coal as a gap filling measure is increasing sharply. Faced with the opposition, the Prime Minister's Office, which had drafted the fuel supply agreements between CIL and power companies in February this year, has now asked the public sector companies to reach out to the states, an unfair demand.
The state governments claim pooling will increase the price of power, as coal prices are now supposed to be pass through for generation companies-a genuine apprehension. The opposition from the states is in addition to that from independent directors of CIL who have warned that the company could face a Rs 60,000 crore ($12 billion) of losses over the next 20 years if it imports 20 million tonne of coal as a sort of canalising agency.
This is a piquant situation for the sector where every attempt to break the gridlock of low supply-single seller-high demand-high price is coming unstuck. So coal is not being mined adequately to meet demand; of the quantum mined nearly 43 million tonne is lying at the pitheads as there are no rail heads; and imports of coal is turning out to be more attractive. A good example is West Bengal. Despite ranking third in the output list of CIL, the state's pithead price of coal is more than imported coal.