Power sector to fuel Coal India's e-auction price

Higher global price may add spark

Coal India’s (CIL) average net sales realisation from e-auctions is likely to increase by 10 per cent to about Rs 1,650 a tonne in the near term on account of a global surge in coal prices and a revival in projected demand for the fossil fuel in the country, especially from the power sector, analysts say.

According to a report by brokerage firm Motilal Oswal, which sourced the data from the exchanges, e-auction prices had been falling continuously since 2015-16 and remained that way till the first half of 2016-17. This pulled down the average price realisation by 3.8 per cent during 2015-16 and nominally by one per cent in the last financial year. 

“However, e-auction prices have started inching up due to higher international coal prices,” a sector expert said. “A rise in the average e-auction price realisation indicates a near similar rise in the selling price of auctioned coal,” the expert added.

Motilal Oswal expects a 2.8 per cent increase in the average net sales realisation on account of the higher e-auction prices, even if the company doesn’t increase coal prices in the current financial year. Although the total energy demand, excluding captive power plants, has increased by 5.8 per cent to 1,236 billion kwh, conventional generation, which majorly comprises thermal power, increased by 4.7 per cent to 1,154 billion kwh due to displacement from the renewable energy sector. 

An analyst with Motilal Oswal said coal continued to be the main driver of conventional power generation with 86 per cent share. Coal-based generation, inclusive of lignite, increased by 5.4 per cent to 945 billion kwh. However, the demand for coal by the end of 2020 may be less by 52 million tonne (mt) than the projected demand of 970 mt. “However, apparent coal demand will still increase at a CAGR (compound annual growth rate) of 5.4 per cent over the 2017-2020 time period, compared to a flat demand over the last two years,” the analyst said.

During the fourth quarter of the last financial year, it is estimated that Coal India has sold 33 mt of coal in the e-auctions at an average price of Rs 1,719 a tonne, which is 10 per cent higher than the auction price in the October-December quarter. 

It is estimated that in 2016-17, 97 mt of coal went under the hammer in e-auctions, which is 47 per cent higher than what was offered in 2015-16.

A senior company official said the coal behemoth is now targeting to put on block at least 235 mt of coal in the coming three years to increase revenue.

 

Furthermore, with the global coal prices touching $74, the official expects private power producers to buy more coal from the e-auctions. To encourage the private players lift more indigenous coal, Coal India is also offering discounts to the tune of 35 per cent for lower grades and 20 per cent for mid-grades to the power plants.

Debasish Mishra, partner at Deloitte Touché Tohmatsu India, said lack of clarity on coal linkage policy was a factor behind increasing interest in e-auctions.

“Government is yet to come out with a policy on auction of coal linkage for IPPs (independent power providers). IPPs with power purchase agreement (PPA) with a fuel supply agreement, IPPs without PPA selling in spot power market and captive plants are buying coal in e-auction,” Mishra said, adding that for power plants located away from the coast, it still makes sense to buy coal from e-auction, rather than import.