Hindalco Industries, Jindal Steel & Power and Vedanta Ltd. have concluded supply contracts with Coal India, with two companies citing poor quality, pilferage and high transport costs.
In response to ET ‘s request, Coal India stated that cancelations appear to be a calculated move, as companies are now able to purchase fuel at relatively lower prices as a result of the overall decline in demand. Coal India has reduced the auction floor rates.
The state-owned company is already facing an estimated 21 percent decline in sales this year and record pithead stocks. The company executive said that the contracts were secured through auctions between 2016 and 2018, when bids were made at a premium because coal was in short supply.
Coal India subsidiary Central Coalfields said that Jindal Steel and Hindalco opted for the cancelation of three contracts, citing supplies of low-grade coal, while Vedanta did not specify a reason.
Jindal Steel said that since June 2019, coal with a lower energy content has been used on a daily basis, leading to a 30-40 per cent rise in electricity generation costs. The other reasons given for the cancelation of contracts were regular grade changes, very high freight costs, pile-up of coal en route, reported malpractice and supply instability.
“This is as per normal business practice. Fuel supply agreements are constantly evaluated on various factors including costs,” Jindal Steel said in response to ET’s query.
According to Central Coalfields, Hindalco issued a notice of termination because the quality of the coal obtained by the company after December 2019 was lower than the grade agreed.
“Fluctuation in coal is inherent in Indian deposits, even within the same mine, and our long-term customers appreciate that,” Coal India said in its reply.
On coal pilgrimage between mines and end-use plants, Coal India said: “Ownership of coal is transferred to the railroads and customers once it has been washed. However, we are looking into this issue and would flag it up with the State authorities concerned, as it is more of a question of law and order.
