Cement, steel, paper to lose cheap-fuel edge

The Economic Times, New Delhi
Cement, steel and paper industries may see an escalation of almost 40% in their fuel costs this year, with the government planning to phase out supplies of subsidised coal to these industries. Companies likely to face the heat of increased fuel costs include SAIL, Gujarat Ambuja, ACC, Ballarpur Industries, JK Paper.

Under the proposed system, core and non-core sectors (other than power, fertiliser and defence) would have to pay a market-determined price, arrived through auctioning, instead of the administered price at which they source coal now. This could result in a cost escalation of almost 40% as this is the difference between auctioned coal and the administered price at present. �The PM�s energy co-ordination committee (ECC) is believed to have favoured auctionbased pricing for all those industries which receive market prices for their product and services. The coal ministry is considering the proposal,� a government official said.

Price for coal for these industries varies between Rs 2,000 and Rs 2,500 per tonne. As against this, the auctioned coal is sold at Rs 2,800-3,500 per tonne. This would push up the input cost of these sectors substantially. The coal linkage com mittee wants to maintain different prices for the power and fertiliser sectors which are given a higher level of subsidy than other industries. It is argued that industries which sell end products at market-determined prices, should not enjoy subsidised coal. Power utilities will, however, continue to get linked supplies of coal at a notified price decided by standing linkage committee of the government.

Even now, steel and cement units also receive linked sup plies (at prices higher than for power utilities) and meet only a smaller requirement through market purchases. The pro posed changes would make steel, sponge iron, cement, pa per, brick, aluminium units to pay auction price for coal as they charge market price for their products.

�It is expected that the changes would be part of the pro posed Coal Distribution Policy,� an official said. The switchover (to market determined pricing) may be imple mented in phased manner to give enough time to these sec tors to finalise their fuel plan, sources said.

Price of coal for power utilities, fertiliser and defence units (where product price is regulated) of would continue to re main subsidised as government wants to control costs there These would receive coal through fuel supply and transport agreements (FSTAs) at notified prices. The FSTAs are replac ing the present linkage system. Companies with long-term FSTAs may also continue to receive coal at notified prices.