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An orderly transition from coal to renewables: The National Coal Index

  • Published
    18th Jul, 2022
Context

Since the onset of the pandemic and after the Ukraine-Russia war, commodity prices, especially that of energy, have surged worldwide.

  • With inflation at unprecedented levels in many countries, concerns over energy security have gained centre stage.
About
  • Recently, there have been several policy initiatives in the coal sector in
  • One which has gone largely unnoticed is the introduction of the National coal index (NCI).
  • This index was created to provide a benchmark for revenue-sharing contracts being executed after the auctions for commercial mining of coal.
  • This development shows the importance of increasing domestic coal production to reduce the exposure of the domestic economy to the price volatility of international markets.
  • Anticipating these problems, a big effort toward permitting commercial mining has been made to get the private sector to produce more coal.
  • After taking preparatory action, about 50 contracts have been finalised in the last two years.
  • Several other steps have been taken to increase domestic coal production.

National Coal Index (NCI)

  • About: It is a price index which reflects the change of price level of coal in a particular month relative to the fixed base year.
  • The base year for the NCI is Financial Year 2017-18.
  • Compilation:
  • Prices of coal from all the sales channels of coal, including import, as existing today are taken into account for compiling the NCI.
  • The amount of revenue share per tonne of coal produced from auctioned blocks would be arrived at using the NCI by means of defined formula.
  • Sub-Indices: NCI is composed of a set of five sub-indices;
  • Three for Non Coking Coal and two for Coking Coal.
  • The three sub-indices for Non Coking Coal are combined to arrive at the Index for Non Coking Coal and the two sub-indices for Coking Coal are combined to arrive at the Index for Coking Coal.
  • Thus, indices are separate for Non Coking and Coking Coal.
  • As per the grade of coal pertaining to a mine, the appropriate sub-index is used to arrive at the revenue share.

Coal Sector Reforms in India

Unlocking coal mining for private players is a step forward to attain self-reliance in the coal sector. However, for sustainable utilization of coal, there is a need to look into these reforms from a multidimensional viewpoint.

Announced Reforms in Coal Sector

  • Commercial mining of coal allowed, with 50 blocks to be offered to the private sector.
  • Entry-norms will be liberalised as it has done away with the regulation requiring power plants to use “washed” coal.
  • Coal blocks to be offered to private companies on revenue sharing basis in place of fixed cost.
  • Coal gasification/liquefaction to be incentivised through rebate in revenue share.
  • Coal bed methane (CBM) extraction rights to be auctioned from Coal India’s coal mines.

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