COAL PRICING FORMULAS: W. BLASCHKE

In 1990 for the first time Polish coal trade started using “pricing formulas” – mathematical equations that were suppose help in establishing correct price in regards to the coal parameters. The idea behind it was simple; due to very poor coal quality in late 1980s (ash content coming to even 40%), government decided to bring in new pricing system to promote production of high quality coal. Since May 1990 Ministry of Finance introduced in the mining sector two different pricing formulas that were used to create new pricing systems.

The first one, called W. Blaschke’s Formula was created in the IGSMiE PAN in Kraków and was used between 1990 and 1993. It was based on three quality parameters: calorific value (Qir), ash content (Ar) and for the first time – sulphur content (Str). All parameters were given in As Received (ar) conditions (including total moisture). While constructing the formula, experts decided to follow the international (EEC) standards, used in global coal trade in 1980s, where price of coal changes proportionally to changes in calorific value and change in ash content by 1% or sulphur content by 0.1% was changing the price by one 1%. To force mining sector to produce more coal of high quality (especially with low ash content; the problem was highlighted above), experts from IGSMiE PAN divided coal into the three categories: grade I with max ash content of 12%, grade II with 12-20% of ash content and grade III with ash content higher than 20% (additionally, coal grade II’s price was increasing by 2% for every 1% of ash content lower). The W. Blaschke’s Formula structure is shown in equation bellow:

wblashform

  • Cwe – the calculated price of steam coal, expressed either in PLN/Mt or USD/Mt,
  • re – coefficient responding to coal size (for size 0-31.5 mm re = 1)
  • We – coefficient responding to the ash content, in regards to the grades above. For grade I We = 1, for grade II We from 1.0 to 0.8, for grade II We = 0.8,
  • Cwb – reference coal price, expressed in PLN/Mt or USD/Mt. Reference coal quality parameters: Qir = 25.1208 MJ/kg, Ar = 12%, Str = 1%,
  • Qir – calorific value, expressed in MJ/kg,
  • Ar – ash content, expressed in %,
  • Str – sulphur content, expressed in %.

As mentioned above, while creating the new price systems in 1990, the experts were basing on the international practice. That is why the coal quality parameters used in both formulas are the ones used in global coal trade (e.g. in API 2 index). Meanwhile, Polish power industry uses coal of rather lower calorific value (21,000 kJ/kg), higher ash content (22%) and higher sulphur content (0.9%). The first coal quality was referred to as “indicative coal” and the second one as “normative coal”.

Advertisements