Expansion in newer business will reduce funding dependence: Coal India CMD

Competition from private players is not a worrying factor for CIL. Their role will be complementary to ours, said Pramod Agarwal

National miner Coal India Limited (CIL) is standing at crossroads never witnessed during its existence so far. Apart from facing competition from private miners, and dealing with financiers who are moving away from fossil fuel, the company also faces the challenge of reducing employee strength and mining costs. In an interview with Shreya Jai, the Chairman and Managing Director of CIL, Pramod Agarwal, addressed the internal issues and future plans of the company. While he hopes the demand for coal to rise, CIL is spreading wings in other businesses. Edited excerpts:

With the Centre opening up the commercial coal mining sector to private players, it is expected that CIL will face tough competition. Your thoughts.

Competition from private players is not a worrying factor for CIL. Their role will be complementary to ours. They may add additional quantities of coal into the domestic supply system, but would not replace CIL. This in fact would help the country reduce coal import dependency to some extent. Our strength lies in decades of core competence and experience. Key issues that will help us stay ahead of competition and retain our leadership role are established infrastructure, streamlined operations, uniform coal quality, cost efficiency in production and reliable and timely delivery of supplies. We also hold close to 53 per cent of the country's entire coal resource base of 329 billion tonnes. Our mines have a favourable stripping ratio that makes our coal highly cost competitive.

Globally, financiers are moving away from fossil fuel. How will it impact the funding for CIL?

Our strong financial fundamentals make funding of coal mining projects self-sustainable. Funding plans will be driven by our own capex programme and through joint ventures, special purpose vehicles and build-own-operate models. In newer diversification ventures, Coal India’s exposure in funding will be minimal with no technological risk. Our prospective partners would bring to the table most of the capital and technology. These newer ventures are beyond CIL’s core competence areas and technical expertise. So the funding will be minimal. For example, CIL is pursuing a first of its kind coal to methanol plant in Dankuni, West Bengal on the build-own-operate model where most of the capital would be put by the winning bidder. Similarly in coal gasification projects, mine developer cum pperators (MDO) mode and tripartite SPVs for rail infrastructure, our funding is limited.

What is the status of CIL's planned share buyback?

No such proposal is on the anvil at present. The reason being that because of the organisational structure, there would be high tax incidence.

Going ahead, how are you planning to reduce cost, especially in labour and resettlement, and rehabilitation, which form the bulk of CIL's cost?

Major cost cuts would be effected through a steadily falling headcount to the tune of 13,000 to 14,000 employees per annum due to superannuation. The fall is likely to increase further making the company leaner and fitter. We plan to stay away from opening mines that attract large manpower induction, meaning employment offers against land acquisition.  These measures would ensure that the average wage bill comes down in the future. To achieve economy in operations we have closed down around 23 mines and plan to shut down a few more in 2021-22.

We were able to arrest payouts on grade slippages and there are strong indications that by the closure of the current fiscal, we could garner around Rs 660 crore as net quality bonus for supplying better grade of coal than the declared quality. Our overall expenditure fell by Rs 1,838 crore or 3.3 per cent during the year till December 2020. We are also becoming more cost effective through increased operational efficiency.

For the staff capacity which superannuates, will they be replaced? What is the company's annual hiring plan and how much of its cost will come down in the next five years?

The superannuated manpower would not be replaced and hiring would be need based. The reduction stated is net after adjusting the induction numbers. Up to December 2020 of the current financial year, reduction in manpower expenses was Rs 735 crore. As there would be more natural attrition, there would be significant cost reduction in employee expenses by FY25.

For the mines being closed, is a similar number of new mines being started? Are you witnessing a slowdown in coal demand, as estimated by energy pundits globally?

While 9 smaller mines are facing closure, high capacity mines are being opened. Also, the capacity of the existing mines is being expanded. We can compensate for the coal quantity of closed mines from our other larger projects. There is actually a coal demand surge with the revival of economic and industrial activity and increased power demand.

What are CIL's plans in core mining and other sectors that it is planning to diversify into?

We are expanding our coal projects, 32 new and expansion projects were cleared in the current fiscal till January 2021 having an incremental capacity of 193 million tonne per annum which is a record high. To operationalise greenfield projects we have devised a transformative plan to engage MDOs, of international repute for 15 of our mines. Many rail infrastructure plans are in progress. Apart from CIL’s own core expansions, diversification off-shoots predominantly include solar power generation, clean coal initiatives like coal bed methane extraction, surface coal gasification, coal to methanol and washeries. Solar power generation lists high on our diversification plans.

What investment are you making in coal evacuation infrastructure?

For coal evacuation infrastructure we are constructing 21 greenfield and brownfield railway sidings in four of our subsidiaries and investing in construction of 12 rail line projects. The combined investment of all these rail evacuation infrastructure works out to about Rs 40,000 crore. These projects will help improve loading quantity in future when production expands. We are also refurbishing old sidings and strengthening rail connectivity between the sidings and the main rail lines.