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Indian miners reject plan to link national coal index to foreign prices

NEW DELHI (Reuters) - India’s miners are rejecting a government proposal to establish a national coal index that would be linked to international prices, documents reviewed by Reuters show, because it could make domestic supply uncompetitive.

A labourer works inside a coal yard on the outskirts of Ahmedabad, April 6, 2017. REUTERS/Amit Dave

India’s government is creating a coal price index as part of its plans to open the coal sector to outside investment and end state-run Coal India’s control over prices. The country plans to invite bids from global firms for coal mining blocks by the end of 2019.

A government panel has proposed one index that would link directly to foreign indexes, such as in Indonesia and Australia and a second proposal that measures the value and volume of all coal transactions, including imports, and compares them to a base period, government documents reviewed by Reuters showed.

Local coal prices would likely rise as a result of either proposed index, reducing the competitiveness of local supply, which typically has a lower heat content, to imports.

The Federation of Indian Mineral Industries (FIMI), which counts Rio Tinto’s India unit and India’s Adani Enterprises among members, objected to both plans in a Aug. 23 letter to the Ministry of Coal that was reviewed by Reuters.

FIMI argued instead that the government should base prices only on Coal India’s fuel supply agreements and e-auctions.

“The weightage of lower grades accounts for almost 70% of total (Indian) production. Contrary to this, global indexes are based on higher gross calorific value coals,” FIMI said.

India’s coal ministry declined to comment on details about the index and when it plans to release it.

“Indian coal market has not matured enough to be linked with such indexes. Indian coal is still suffering badly with quality issues at mines, prices are offered ex-mine unlike global indexes,” FIMI said.

Coal is among the top five commodities imported by India. Shipments are surging after the government failed to open the industry to competition, despite passing a liberalization policy 19 months ago.

FIMI argued that India should have a separate index for coking coal, used in steel mills.

But a future index should not look like Indonesia’s, which factors in various indices including the export index from Newcastle, Australia, as Indonesia is the world’s largest exporter, while India would forever remain an importer, FIMI said.

Reporting by Sudarshan Varadhan; Editing by Deepa Babington and Christian Schmollinger