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Volume growth alone is not the secret behind the turnaround in Coal India Ltd’s (CIL’s) supply to power companies in FY13. Under pressure to ramp up coal production for power stations, the miner did a smart juggling of the allocation of supplies, selling a higher-than-usual proportion of its incremental (or additional) output to power firms.
A Business Standard analysis of the figures of production and off-take this year reveals the strategy. Between the April-January period in FY13, CIL’s production increased six per cent and off-take grew eight per cent. Surprisingly, supply to power utilities jumped an unbelievable 11 per cent. The extra coal for power was made available partly by increasing the sector’s allocation from the incremental off-take of 29 million tonnes (mt) and partly though liquidation of stocks.
A top company executive said the power sector got a bigger pie, but only from the incremental off-take. “Most of the incremental off-take of coal has gone to power companies this year. Generally, 70 per cent of CIL’s coal goes to the power sector and 30 per cent to others. On the same pro rata, one can argue even incremental output should be assigned in the same ratio. Instead, share of power sector in incremental supplies was over 90 per cent between April and February,” said the executive.
Production and offtake data shows the trend of higher output allocation for power utilities continued in February, too. Between April and February in FY13, CIL’s production increased 4.3 per cent to 398 mt. Total coal off-take grew 7.3 per cent to 419 mt. However, supplies to power utilities jumped 10 per cent to 310 mt, compared to the same period of FY12. Specific data for the sector-wise break-up of supply of incremental output and liquidation of stocks was not available.
Further, the larger dispatch to power sector has come with its own financial implications for CIL. Keeping power companies happy has led to a dent of around Rs 200 crore in the miner’s earnings so far in this financial year. CIL supplies coal to non-power consumers at a 30 per cent higher price than power companies. The miner’s average realisation from non-power category currently stands at Rs 1,450 a tonne, compared to Rs 1,150 a tonne realisation from power consumers.
Based on the norm of supplying 70 per cent output to power sector, around 9 mt coal (70 per cent of 29 mt) should have been supplied to non-power sectors. However, they received only 2 mt, leaving a gap of 7 mt in supplies. Taking into account the difference in realisation of Rs 300 a tonne between power and non-power consumers, the 7 mt shortfall in higher grade supplies works out a Rs 200 crore loss in overall realisation in this financial year.
