The composition of the benchmark used to determine the price of imported coal is likely to undergo a change, giving Indonesia a higher weightage compared to Australia. This revision is expected to result in lower coal prices, as Indonesia is the largest exporter to India and offers cheaper coal compared to Australia.

The Central Electricity Regulatory Commission (CERC), the power sector regulator, has proposed a review of the composite index after almost a decade. The CERC believes that with the advancements in international coal markets and the increased quantum of steam coal imports in India, it is necessary to update the index. Furthermore, the availability of credible and reliable coal price indices representing steam coal imports has improved over the years.

The composite index plays a crucial role in ensuring fair and reasonable pricing of imported coal. It serves to protect consumers from price fluctuations and ensures transparent and equitable pass-through of imported coal costs to consumers.

The last revision of the composite index for imported coal was carried out in 2013, assigning a 50% weightage to Indonesian coal prices, with South African and Australian coal prices each holding a 25% weightage. The CERC now proposes to increase the share of Indonesian prices to 65% and reduce the weightage of Australian coal prices to 10%.

To calculate the composite index, the CERC suggests that the price indices for 5,000 kcal/kg GAR grade coal published by Platts and Argus/CoalIndo should have an equal share in the overall weightage of Indonesian coal prices.

Stakeholders have been invited to provide their feedback on the proposed methodology by June 30.

According to the CERC, these indices represent lower-calorific value (CV) coal, which is more representative of coal imports into India. They are widely used as reference prices for coal contracts.

The potential changes in the composite index aim to align the pricing mechanism with current market dynamics and provide a more accurate reflection of the cost of imported coal, particularly from Indonesia, which plays a significant role in India's coal imports.