NITI Aayog’s Reform Proposals Will Benefit Coal India, Says Emkay Global
Coal India Ltd. will benefit from NITI Aayog's proposal to split the company and move towards market pricing of coal, according to Emkay Global Financial Services Ltd.
The government must “corporatize the seven subsidiaries of Coal India into independent companies and allow them to compete against one another in an open coal market," the policy think-tank said in its Draft National Energy Policy. Coal blocks must be allocated on a commercial basis to ensure that fresh production from new mines progressively come from the private sector, the policy document added.
The NITI Aayog also called for ending the current mechanism used to price coal provided to power producers.
The concept of ‘pass-through' of coal price in power sector whereby coal is supplied to power companies at subsidized rates compared to the market price so that they may sell electricity at subsidized prices does not encourage efficient mining, and is also responsible for low productivity of coal in Coal India.NITI Aayog's Draft National Energy Policy
The move towards market pricing of coal will increase Coal India's efficiency, Goutam Chakraborty, an analyst at Emkay Global told BloombergQuint.
Coal India will be benefited as quality of coal will improve and prices will also go up. Prices will be substantially higher than e-auction and fuel supply agreement prices.Goutam Chakraborty, Analyst, Emkay Global Financial Services
Here are some other highlights from NITI Aayog's Draft National Energy Policy:
- Need “careful assessment” of demand for coal-based power to ensure that Coal India's $1 billion annual investment is not left stranded.
- Must move away from the “opaque coal economy” that allows Coal India to charge significantly higher prices than the implicit cost of mining by the independent power producers.
- Protect vulnerable electricity customers through direct benefit transfer in the "unlikely event" of any increase in price of coal for generation companies.
Also Read: Coal India Will Shut 37 Mines In FY18
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