The Ministry of Coal has recently started the commercial auction of coal mines, bringing into limelight a revenue share basis model utilizing the National Coal Index (NCI). The NCI was launched in June 2020. This development marks a significant move in India’s energy sector and brings forth the importance of coal as an abundant source of energy that caters to 55% of the country’s energy requirements.
About the National Coal Index (NCI)
The NCI is a price index that monitors the changing level of coal prices each month, relative to a pre-set base year. For the NCI, the base year is Financial Year 2017-18. The index gives a comprehensive snapshot of coal prices, encompassing all sales channels, including imports. The value of the revenue share for every tonne of coal produced from auctioned blocks is calculated using this index through a specified formula.
Compilation of the NCI
The NCI incorporates coal prices from all sales channels, including imports, as applicable today. It is a comprehensive pricing model that ensures updated price assessments.
Sub-Indices in the NCI
The NCI consists of five sub-indices: three for Non-Coking Coal and two for Coking Coal. These sub-indices are used to determine the overall Index for Non-Coking and Coking Coal respectively. Depending on the grade of coal associated with a mine, the appropriate sub-index is applied to calculate the revenue share.
Classification of Coal
Coal, the most abundant fossil fuel in India, can be classified into two types based on its uses: Coking Coal and Non-Coking Coal.
Coking Coal
Coking Coal undergoes high-temperature carbonization when heated in an air-less environment beyond 600 degree Celsius. This process yields a solid porous substance called coke. Coke, when combined with iron ore and limestone in a blast furnace, forms steel in steel plants. Coking Coal is ideally low in ash content. The primary use of this coal type is in the steel manufacturing and metallurgical industries, and it is also used for making hard coke.
Non-Coking Coal
Non-Coking Coal lacks coking properties and is primarily used in thermal power plants for electricity generation. It is commonly referred to as steam coal or thermal coal. This type of coal finds application in cement, fertilizers, glass, ceramics, paper, chemical and brick manufacturing industries, and for other heating purposes.
Ranking of Coal
Coal is further classified into four ranks: anthracite, bituminous, subbituminous, and lignite. These rankings are based on the types and amounts of carbon present in the coal and the amount of heat energy it can produce. Such classifications help in determining appropriate uses and pricing mechanisms for different types of coal.
