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The Kolkata-based, world’s largest coal miner Coal India Ltd (CIL) has successfully fended an output crisis that promised to engulf not just its own financial health and image, but fresh investments running into thousands of crore in major infrastructure sectors too.
After remaining stagnant for over two years, production has risen 6% and supply for power companies has jumped 11% helping push profits 12% to Rs 11,900 crore in nine months ended December. And all of this, without any major price hike in two years. In an interview with Sudheer Pal Singh, Chairman Singayapalli Narsing Rao attributes the performance to volume growth but adds a decision on price hike will be taken at an appropriate time. Edited excerpts:
What is the topmost agenda on your mind at the moment?
We are working on a very ambitious production target for the 12th Plan period – achieving an incremental production of 180 million tonne (MT) over current level of 435 MT annually. This is much higher than the 80 MT achieved in last Plan. We must do this because there is no scope for complacency or avoiding risk taking.
The idea is to achieve production of 615 MT in 2016-17 to be able to meet the Fuel Supply Agreement (FSA) commitments made to meet coal requirement for 60,000 MW additional capacity over 60,000 MW capacity existing as on March 2009. This means, by the end of the current Plan period, CIL will be supplying adequate coal for operation of 120,000 MW capacity.
However, even after meeting this ambitious target, there will be a shortfall of 200 MT for the country by then. This shortage is due to, both, less production growth by CIL and dismal performance of captive block holders. We have not only identified new projects but are also focusing on new initiatives including Mine Development Operators (MDOs).
Which are the top constraints for realization of this plan?
The biggest constraint for us to reach the desired level of productivity is rail connectivity. While there are problems related to land acquisition and Rehabilitation and Resettlement (R&R) too, these will be overcomed. There are clear signs of a realization at the highest level in the government that Environment Clearances approvals have to be eased. But the same cannot be said for forest clearances. This is due to inordinate delays at state level.
CIL’s expenditure has increased multi-fold owing to the last wage=hike and the increase in diesel prices. Earnings are constrained as prices have not been hiked for the past two years and e-auction volumes have come down. Would this fiscal’s financial performance disappoint?
While e-auction volumes may remain marginally lower by 2-3 MT, the additional realisation is almost on track. Volumes have picked up since November. I do not see any additional dent on realisation because of offering higher grade coal. There may be some marginal growth in additional realization over last year.
The wage hike came in effect from July 1, 2011. Its impact was taken care of by the price hike that took place before it. Indeed, coal prices were hiked effective March 1, 2011 which was done in anticipation of wage hike. Therefore, the wage hike is not a major concern and it occurs once every 5 years.
However, there would be some increase in employee costs owing to increments and Dearness Allowance (DA) neutralization.
However, this is also nullified, to a large extent, by the retirement of people who are essentially at the high end of pay scale. As for diesel prices, there was an increase of Rs 5 per litre in September 2012 and now another Rs 10 per litre for bulk consumers. Thus, fuel cost has gone up by Rs 15 per litre of diesel. This increase may cost us around Rs 1,800 crore per annum.
However, during the current year, its impact would be Rs 400 crore. The full impact of diesel price hike would be seen only during the next financial year.
So, would you raise prices to offset this impact?
We are constantly monitoring our cost of production, both at the management and board level. A decision regarding price hike would be made at the appropriate time. Please remember that we have been able to show fairly good financial results at the end of nine months this fiscal, largely on account of volumes.
We will hopefully show similarly good results in the future, too. There is also scope and need to improve the productivity of men and machinery. However, in any business such as ours some price hike is inevitable.
At a time when volume growth has become so important, the company has pulled down production target for 2013-14 from 464 MT to 452 MT. Why?
We realized we could only reach a certain level despite making best efforts. We had taken an ambitious production target growth of 6.5%. But I think we will end up with 4.5%+ growth. It is a concern but not a major one because we still have the luxury of offloading the ground stock. But this cannot be continued for long. This year we are likely to liquidate around 18 MT stock. This will still leave us with 52 MT at the end of March. There will still be some scope to reduce that by 10-12 MT.
But next year, if we want to have off-take growth of 27 MT, production growth has to come even if we liquidate stocks by 10-12 MT.
What would be the impact of price pooling on CIL? Also, what is the current status of the Fuel Supply Agreement (FSA) issue?
Ideally, there should not be any impact of pooling on us. Though there have been some apprehensions on some aspects but the bottom-line is, the mechanism should be revenue-neutral for CIL. FSAs have already been signed with 55 power stations. This takes care of 21,000 MW out of the total 60,000 MW capacity. Once NTPC also signs the pacts, the total tied-up capacity will increase to 35,000 MW.
Two important draft legislations, which will have serious ramifications for Coal India, are coming up for discussion in Parliament – Mining Bill and Land Acquisition bill. What would be the total outgo?
If Parliament passes a law, we have to abide by it, both in letter and spirit. However, if any additional financial burden occurs on Coal India on account of MMDR Act amendment, without going into the moralities, I can only say that such an additional burden will, inevitably, be passed on to the customers. So, will be the case with Land Acquisition Act amendment. Any additional impact on us would be obviously passed on to the customers.
