CIL reduces premium for tapering linkage holders from 40% to 20%

Jan 07 2014, 04:03 IST
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SummaryThe Coal India (CIL) board has decided to reduce the premium on the notified price of coal supplied to tapering linkage holders from 40% to 20%

The Coal India (CIL) board has decided to reduce the premium on the notified price of coal supplied to tapering linkage holders from 40% to 20% despite the coal ministry’s request to absolutely withdraw it.

CIL CMD director S Narsing Rao said the company will abide by the decision of the board and it was the board's decision to reduce and not withdraw the premium.  

According to a coal ministry official, the power ministry has repeatedly asked the coal ministry to withdraw the premium charged for coal supplies to tapering linkage holders following which the coal ministry took up the matter with CIL. CIL informed the ministry that the matter was put up at a board meeting on May 20, but the board deferred the decision.

The ministry has issued a fresh letter to CIL, asking it to furnish the latest report on the issue of premium charged, the ministry official said.

Rao said the board, at its last meeting on December16, took the decision. He, however, didn’t want to comment on the letter from the ministry. The coal ministry subscribes to the power ministry’s view that there is no rationale in charging the premium, the coal ministry official said.    

The power ministry is of the view that the notified price covers all cost components and margin and a premium on tapering linkage holders is discriminatory.

At present, there are 15 applicable elements for pricing coal and notified price is fixed taking all elements and margin into consideration.  

Tapering linkage is given to those who have been allotted blocks for captive sourcing. The linked quantity is reduced in proportion to the coal extracted from the block under development and the linkage ceases to exist when the block is fully developed.

According to a CIL official, a tapering linkage holder is doubly benefited because on the one hand it is sitting on a fuel resource and on the other, it has its required fuel supply. While the undeveloped block creates an asset base on whose basis the company’s balance sheet gets leveraged, a premium on notified price would keep the company under pressure to develop the block as fast as it can.

However, all the components of the production cost and margin are covered in the notified price and charging an additional premium was matter was of policy, which didn’t come under CIL’s purview. Charging a premium above the notified should be the coal ministry’s prerogative, a power ministry official

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