The department of industrial policy and promotion (DIPP) has opposed the move by the coal department to remove the cement sector from the “core sector” category.
As a result, the cement sector will get less coal from Coal India Ltd, which supplies 80 per cent of the fuel at a fixed notified price through fuel sale agreements.
The new coal distribution policy proposes to put the cement sector into the “other sector” category. In the proposed policy, only power, fertiliser and defence sectors have been kept in the “regulated sector” category.
This will enable them to get 90 per cent of their coal from Coal India Ltd. The Cement sector will be get only 75 per cent of their coal from Coal India Ltd.
Cement industry insiders feel that if the proposed policy is accepted in its present form, the effect on the sector will be marginal. “But a rise in cement prices cannot be ruled out. The extent will depend from company to company,” said Rahul Kumar, chief operating officer of Cement Manufacturers’ Association of India.
According to Kumar, the cement companies could face problems of availability of coal as they will have to procure the rest 25 per cent of the coal through imports or e-auctioning. “In e-auctioning, traders get hold of the coal and sell it at higher prices. Moreover, the supply of coal is nor assured,” he said
To tide over this problem, the industry department has suggested that the coal department keep a certain amount of coal in the e-auction for the cement sector. Moreover, it feels that imports will not be a feasible option for the sector as 90 per cent of the cement factories are located in the hinterland.
The DIPP has intimated the coal department that the move will not be in public interest as it is a key ingredient in various critical sectors, including infrastructure.
According to the estimates by the department, the demand for cement in the country is likely to increase by 70 per cent to 75 per cent during the course of the 11th Five-Year Plan, during which 100Mt of additional capacity is expected to be added.
Government sources said the industry department was of the opinion that in sectors like power and fertiliser, which had been kept in the regulated category, the cost of coal was a passthrough.
Moreover, these sectors have an option to approach their respective regulators to factor in coal pricing in their ultimate determination of tariff, and hence, to include them in the “regulated” category was not reasonable.