India utilities move to coal index-pricing

By Jackie Cowhig

LONDON (Reuters) - Indian state utilities are leading a switch to coal index-linked pricing from fixed prices to secure imports and to be visibly paying fair market prices, utilities and analysts said.

Prices paid by the utilities will move monthly in line with the international spot market.

"The Indian state utilities are moving to index-linked prices because this is a more transparent way of buying coal," said Mark Earley, Head Asia Pacific Coal Consulting at Wood Mackenzie.

Utilities led by National Thermal Power Corp (NTPC) are using a basket of coal indexes: the API4 South African index, the Newcastle Australian coal FOB index with adjustments for bunker prices.

"We are certainly looking at index pricing for our independent power plant in Tamil Nadu as well," said Coal & Oil President Ahmed Buhari. "We have been advocating this concept for a long time, and are happy to see NTPC taking the lead."

"This concept is finding widespread acceptance, as annual fixed-price contracts swayed much," he said.

All India's state utilities are moving to index-pricing for imports and will use NTPC's formula, said Malay K. De, chairman of West Bengal State Electricity Distribution Co.

Gujarat Electricity Board will award a tender for 1.5 million tonnes of coal for 2010 in the next few weeks, also at index-linked prices.