The story of switchover of UHV to GCV based gradation system and pricing of Non-coking coal in India

Brief history of gradation of Non-coking coal in India

Coal has been primarily used in our country for domestic usage only and as such it was never felt necessary to compare its gradation with internationally traded coal. However, for the purpose of pricing, gradation of non-coking coal had been an issue right from pre-independence days. Recorded gradation of coal exists since 1924 when such coals were graded in two classes – low-volatile and high-volatile coal using Ash content and the corresponding Unit Heat Value. Four grades were designated in each class. After formation of the Coal Board in independent India in 1956, the concept of high and low moisture coal was introduced for the coal produced in the then states of Bihar and Bengal. The coal from coalfields outlying these states was kept under a separate category. The low moisture coal was graded on the basis of ash content (%), while high moisture coal was graded on the basis of combined ash and moisture content (%).

In the year 1962, the then Central Fuel and Research Institute (CFRI), a laboratory of Council of Scientific and Industrial Research (CSIR), now a part of Central Institute of Mining and Fuel Research (CIMFR), developed a systematic gradation system based on Useful Heat Value (UHV) in kcal/kg. The proposal of CFRI was approved by the Government of India in 1966-67. However, it became extensively used only after the nationalization of Non-coking coal mines in 1973. CFRI further simplified the gradation later in 1979, to account for the heat absorbed by the ash and consumed by the moisture in its removal and developed two empirical formulae for determination of the UHV of coals.

For coals with high moisture content:

UHV = 8900 – 138(Ash% + Moisture%)

For coals with low moisture and high volatile matter (VM) content:

UHV = 8900 – 138(Ash% + Moisture%) – 150 (19 – VM%) 

The value of 8900 kcal/kg was based on the maximum heat value of pure coal. 

Seven grades of non-coking coals were fixed based on their UHVs determined through the above formulae.  These were as follows:

UHV based gradation of non-coking coal

Coal Grade	UHV (kcal/kg)
A	Greater than 6200
B	Greater than 5600 but less than or equal to 6200
C	Greater than 4940 but less than or equal to 5600
D	Greater than 4200 but less than or equal to 4940
E	Greater than 3360 but less than or equal to 4200
F	Greater than 2400 but less than or equal to 3360
G	Greater than 1300 but less than or equal to 2400
Ungraded	Less than or equal to 1300

Circumstances leading to the need for shift in gradation criteria

In the sixties when the UHV based gradation of coal was developed, mostly superior grade coal was being mined and used in India and the UHV determined through the above empirical formulae compared well with the actual heat value of coal determined through laboratory processes. As time passed by and nationalization of coal mines took place, superior grade coal depleted fast. Due to thrust on increasing production for power generation in the country and also owing to development of boilers for burning inferior (low heat value) grade coals, production of such coal became predominant in the overall mix of total production of coal in the country. It was found that the actual heat values of lower grade coal were higher compared to their UHVs as the grades decreased from A to G, the gap increasing with the fall in grade. Pricing of coal of different grades was earlier fixed by BICP in the controlled regime but as the pricing was gradually decontrolled from the years 1996 to 2000, the need for having a GCV-based pricing of coal was felt increasingly in Coal India Ltd.  

It was an established fact that even if two coals have the same amount of mineral matter and moisture, their calorific values may still vary due to the inherent characteristics of the organic substance (pure coal) in it. Coal India Ltd., therefore wanted to establish equivalency of UHV of coals of different coalfields with their GCVs and seriously advocated for a study in this respect. A Science and Technology project was approved by the Govt. of India and CFRI was asked to undertake this project of establishing equivalency of UHV with GCV of coals of different coalfields. 

CFRI conducted extensive tests by subjecting 103 samples of Run-off-mine coal collected from different coalfields of MCL, SECL, CCL, WCL, NCL and SCCL for determination of their UHVs and GCVs. The data, when analyzed revealed that there were wide scatters in the relationship when all data were considered together. However, the scatter was narrower in the case of any particular coalfield. Some of the results of UHV and GCV for coal samples of various coalfields determined at 60% relative humidity and 40⁰ C were as follows:

Variability of quality parameters of overall samples

Coalfields	Ash + Moisture% 60% RH	UHV (kcal/kg)	GCV (kcal/kg)
WCL	27.4 – 65.7	467 – 5119	2104 – 5379
SECL	21 – 50	2000 – 6002	3555 – 6345
NCL	24.6 – 45	2276 – 5505	3541 – 5545
MCL	34.8 – 57.5	924 – 3380	2585 – 4400
CCL	27.1 – 52	1724 – 5100	3250 – 5635
SCCL	24.9 – 41.6	1779 - 5464	3311 – 5681

An equation for overall correlation of all these data was developed by CFRI which was as follows:

GCV = 2111 + 0.6812xUHV

As this equation was developed with very widely scattering data, it was not depicting the actual heat value. The correlation and the consequent equations developed for each coalfield separately were different and could be representative for those particular fields. All these correlations, however, indicated one thing for sure that as the UHVs became lower the difference between UHV and GCV became larger. 

Efforts made by CIL for changing the criteria for gradation of Non-coking coal and my contribution

The aforementioned report by CFRI became the basis for CIL to advocate for switching over from UHV-based gradation of Non-coking coal to GCV base. Several correspondences were made with the Ministry of coal and the Power Sector, they being the major consumer of coal, but there was a stiff opposition to this proposal by the Power Sector, particularly NTPC. This was the time in the year 2002, when I was posted as GM (Quality Control) in the Marketing Directorate of CIL. I was privy to drafting several letters and having meetings with NTPC officials for convincing them that CIL was losing heavily on account of not getting the true value of the heat content that it was supplying to the consumers as the pricing system was arbitrary and did not reflect the true price of its heat content. At this time, NTPC’s intent was that as the sampling system of coal in CIL mines was not with auto sampler or mechanized sampling, the GCV determined of such samples would not be a true representative of the coal supplied. Views of NTPC, being the largest consumer of coal produced by CIL, were largely heard in the corridors of power and in spite of our continuous efforts, the issue kept on hanging. Neither there was any go ahead from Ministry of Coal nor was any acceptability by Power Ministry. 

Directive of PMO and the events thereafter

CIL kept on pushing the issue at different opportunities but of no avail. In 2010, when I was functioning as the Director (Technical) of the Company, the matter was referred to the PMO, when it issued a letter, directing CIL and NTPC to mutually resolve the issue. We sent letters to NTPC for fixing a meeting in this respect but no response came from NTPC. Instead a letter was issued by the Ministry of Power to Chairman, CIL and CMD, NTPC to attend a meeting under the Chairmanship of Additional Secretary (Power) on this issue in the Ministry of Power. Ministry of Coal was neither invited nor informed about this meeting. I was advised by the Chairman, CIL to attend this meeting. When I reached the venue, I found a large gathering of officials from Ministry of Power and NTPC, including its CMD for the meeting. Naturally, I was alone from the coal sector. Everyone wanted to shoot me down by alleging that there was no proper sampling system of coal and no auto-sampler was being used by CIL. Hence, NTPC or Power Ministry would not agree for GCV-based gradation or pricing. I was asked to first introduce auto-sampling system in all mines, crush all coals to -50 mm and then only any discussion on this issue would be held. I had put forth my points systematically and had expressed that since coal was already being supplied and a system of sampling was already in place, the only change would be to determine the GCV instead of the UHV. CIL would gradually move towards introduction of auto-sampler in most of the mines. I had based my arguments on the point that the heat rate of boilers expressed in kcal/unit of power generated in the power plants required the actual heat value of coal based on its inherent calorific value, that is GCV, determined through bomb calorimeter. Neither there was any utility of UHV for assessing the quantity of coal required for a boiler, nor there was any basis for pricing coal on UHV, determined empirically. 

This meeting remained inconclusive. No minute was drawn for this meeting, as on my suggestion the Power Ministry officials felt that they were not mandated by the PMO to hold this meeting. The issue was to be settled between CIL and NTPC only. I had apprised the Chairman, CIL, about this outcome on my return, and later, also the Additional Secretary (Coal) informally about this particular meeting.

Final decision on the issue of changeover

The matter was lying low till early October 2011, when in a review meeting taken by the Hon’ble Minister of Coal this issue of switchover again cropped up. I was functioning as Chairman, CIL, at that time. Hon’ble Minister was briefed about the matter and he was requested to agree for the long overdue proposal. After a thorough discussion on the pros and cons, the Hon’ble Minister got convinced and directed that this should be done in a defined timeframe. However, he put the condition that the switchover system should be revenue neutral, that is CIL should fix the prices in the new system in such a way that the total revenue should be same as generated through the existing system of UHV based prices. I was told to complete the process quickly. After taking the opinions of CMDs present in the meeting, I asked for 3 months’ time for completion of the exercise. This was agreed upon and the countdown started from that day.

Major task in constrained time

This was a period when, CIL had neither the regular CMD nor the Director (Marketing). I had to perform all these functions in addition to my regular charge of the Director (Technical). I had to work overtime to get all the information on the UHV and GCV of the coals supplied. Testing facilities were created for GCV determination. Subsidiaries were directed to procure Bomb Calorimeters and until these were available, get the tests done in external laboratories. All the CMDs worked very hard for this objective. I got extensive support from the CMD of CMPDI in getting the GCVs determined at the earliest for the samples sent by subsidiaries.  All the data were collected from the subsidiaries and analysed in the Marketing Division under my personal supervision. 

Genesis of 17 grades and notification of new gradation system

It transpired that since the rejects of coal washeries, that were considered ungraded and had not been covered in the UHV based pricing system, were being extensively used  by the consumers and also that coals of the north eastern coalfields were of high calorific value, even exceeding 7000 kcal/kg, the new system of gradation of non-coking coal should cover all these ranges of GCVs starting from 2200 kcal/kg to more than 7000 kcal/kg. It also transpired that as the standard error in determination of GCV was +/- 50 kcal/kg, the band width of each slab should be around 300 kcal/kg. Accordingly, 17 grades were proposed in the new system and discussions were held in the Ministry of Coal. Ministry agreed to the proposal and after proper correspondences, through the Gazette notification new system of gradation of non-coking coal was published in December 2011. These were as follows:

GCV BAND (K.Cal./Kg.)	GRADE
Exceeding 7000	G-1
Exceeding 6700 and not exceeding 7000	G-2
Exceeding 6400 and not exceeding 6700	G-3
Exceeding 6100 and not exceeding 6400	G-4
Exceeding 5800 and not exceeding 6100	G-5
Exceeding 5500 and not exceeding 5800	G-6
Exceeding 5200 and not exceeding 5500	G-7
Exceeding 4900 and not exceeding 5200	G-8
Exceeding 4600 and not exceeding 4900	G-9
Exceeding 4300 and not exceeding 4600	G-10
Exceeding 3700 and not exceeding 4000	G-12
Exceeding 3400 and not exceeding 3700	G-13
Exceeding 3100 and not exceeding 3400	G-14
Exceeding 2800 and not exceeding 3100	G-15
Exceeding 2500 and not exceeding 2800	G-16
Exceeding 2200 and not exceeding 2500	G-17

Pricing in new system

Pricing exercise involved calculation of the prices of all the bands in INR Per million kcal to ensure that it had a decreasing trend with increasing band number, that is, as GCV reduced. The greatest challenge was to ensure that existing consumers who were used to a particular price for a supply did not have to pay anything extra and the total revenue for CIL did not increase. It was a difficult exercise with several variables and constraints, yet it had to be completed in a defined time frame. In the exercise, while it was possible to maintain the status quo pricing for the erstwhile A, B, E and F grade consumers, it was difficult to maintain the same for C&D grade consumers, as their pricing in the earlier regime was arbitrarily less. Hence, in the new system their prices got a little jacked up, while those for the power sector consumers (erstwhile E&F grades) got marginally reduced, maintaining the revenue neutral objective for CIL.

Entire exercise was discussed in the CMDs meet and as the revenue of WCL was getting reduced – it had a special pricing for its grades earlier due to its higher cost of production, an add on 10% in each new grade was proposed for WCL. New pricing system with add on for WCL was discussed in the Ministry, which finally concurred with our proposal and it was approved by CIL Board on December 31, 2011, effective from January 01, 2012.

Reaction from the industry and the corrections made

Initially, there was no reaction from the market on the new pricing system. However, after a week or so, the industry consumers, who were largely takers of erstwhile C&D grades started complaining to the Govt. that their prices had been jacked up and needed to be relooked into. I was summoned by the Hon’ble Minister and directed to re-fix the prices of bands falling within the erstwhile C&D grades. I had to take a revised pricing proposal to the Board with the concept of old wine in new bottles and the Board in spite of its reservations, yielded to the desire of the Minister. 

Conclusion

I retired a day later with the satisfaction that I could introduce the gradation system based on GCV of Non-coking coal. Everybody including power sector consumers appeared to be satisfied in the new gradation regime. Subsequently, there have been some corrections brought in the prices to reflect sanctity of heat-based pricing and the system has been strengthened with the introduction of a new concept of third-party sampling, though it existed in the earlier regime too. In my opinion, the new system has worked well for the past eight years and needs to be revisited from time to time in the changing internationally traded Non-coking coal prices.