8-fold profit growth in Sept quarter, but legacy issues haunt Coal India

Despite an eight-fold increase in net profit at Rs 30.85 billion for the quarter ended September, and a 10 per cent increase in production this year, Coal India (CIL) continues to consistently miss the ministerial targets every month. In turn, this coal shortage has led to 30 thermal power plants being categorised as critical or super-critical.

Last week, during CIL’s annual day celebrations, coal minister Piyush Goyal expressed his concern that the 10 per cent growth rate may slip into a single-digit growth rate, adding the growth rate isn’t enough.

After the NDA government came to power, the coal ministry had drawn up a roadmap in 2015, under which CIL was tasked to produce 1 billion tonnes of coal. This would nearly eliminate India’s dependence on thermal coal imports. However, with less than a year and a half left to the stipulated timeframe, it has been able to produce 567.36 million tonnes (mt) of coal in the last financial year. This is just a bit more than half of the production quantity. Consequently, the deadline for this ambitious production target was postponed to 2025-26.

Moreover, against the ministerial wish of producing at least 2 mt a day, which could theoretically improve the coal stocks with the plants, CIL’s current daily output stands between 1.65 mt and 1.75 mt.

“The senior management has been visiting the mines regularly to motivate employees and workers to increase productivity, and step up production to meet the targets. We have already registered a 10 per cent production growth. It would have been higher had the rainy season not severely impacted production in the Mahanadi Coalfields area. But, the production is poised to improve further”, CLI’s Chairman and Managing Director, A K Jha said.

During its formation in 1975, after the government passed the Coal Mines Nationalisation Act, 1973, the firm inherited a large portion of legacy mines where production is either hazardous or not financially viable. In many such mines, the coal reserves may not financially justify the potential investment which it needs to make for daily operations.

Although CIL has a vast network of 369 mines, down from over 450 a year ago, only 26 of them are major, which are commercially and technically viable. These select few mines account for over 60 per cent of the company’s total production.

“In India, the biggest problem is lack of contiguous coal seams. In many places, coal occurrence is in patches, which may be not be commercially viable to mine at this stage”, a CIL official said.

A mine rationalisation drive is underway, which will either shut down unviable mines or merge a series of small mines to come up with a single coal block and acquire new mines. However, implementing this drive will take time.

In most of the cases, these mines are located in remote areas from where evacuation is a major challenge, the official quoted above added.

In case CIL carries on the mining process, given the logistical constraint despite the potential, it may lead to stockpiling in the pithead and choke mine entrances. In such a situation, the mines become vulnerable to accidents. It is here that CIL’s second biggest challenge lies — evacuation of coal.

“Evacuation via railways is the desired way out. But, it involves close coordination with railways and state governments for land, permits among others”, another company official said.

However, three major tracks, which can boost evacuation by 100 mt a year, may ease the burden a bit. The first is the 53-km long Jharsuguda-Sardega railway line, constructed at a cost of Rs 11 billion entirely by Coal India in Mahanadi Coalfield area. Partial operations have started in April this year. The second is the Tori-Shivpur line in Jharkhand, where loading of rakes has also partially started. The third, and perhaps the most crucial connector, passing via Chhattisgarh, is the east corridor and east-west corridor. The line is expected to take another one year to complete.

Company officials also pointed that timely environmental and forest clearances have been a key dampener to step up production.

“By August this year, five key environmental clearances were supposed to be okayed. But, it is already November, and none of these have come," a senior company executive said.