At a time when the government is introducing reforms to put an end to the monopoly of Coal India (CIL) while also allocating funds to increase evacuation following the goal of producing 1 billion tons by 2024, the power sector has placed the mining monolith under financial stress. Some of the subsidiaries are forced to withdraw their fixed deposits before maturity, while also searching for credit lines to meet the needs of their working capital.
Dues from power utilities have risen to an all-time high of Rs 17,000 crores as in April this year. This has set alarm bells ringing in the mining PSU, with rising concern of financial unviability. While costs are likely to go up with increased production targets and need to purchase more equipment, realisation needs to be at par with production.
Power sector dues have already gone up as high as 75 days of supply,the maximum so far, encumbringing the company's financial inflow.
There is a demand for further extension of the coal supply lines in the power sector, which leaves CIL's subsidiaries gasping for liquidity. The companies are now financially spread thin but independent power producers are pressing hard for the postponement of coal supply payments. In a three-month period from Rs 12,423 crores as of January this year to Rs 17,000 crore as of April, an rise of Rs 4,577 crore, a source in the know said, the pending payments to CIL as a whole by both state and central generating companies and independent power producers.
In order to ease the economic stress of its power utilities and other customers in the context of the ongoing Covid-19 pandemic, CIL offered a series of relief measures, such as the use of letter of credit (LC), the continuation of supplies despite default of payment, the extension of the period of validity for lifting coal under the ESAs and all auctions without penalty. But the mounting fees put CIL in a financial bond that subsidiaries such as Bharat Coking Coal (BCCL) and Central Coalfields (CCL) have become trapped in cash and forced the early withdrawal of fixed deposits. The subsidiaries have approached their bankers for loans to pay off salaries and wages and to fund their working capital.
However, with the Center announcing a liquidity injection package to the power sector to help it prevail over the cash crunch, CIL will be searching for backlog supply payments owed to coal companies.
CIL 's unpaid power utility debt stood at Rs 14,374 crore at the end of FY20. Yet in one month's time, the dues soared to Rs 2,626 crore, an rise of 18.3 percent by April 2020. Further delay would put CIL under a crunch of working capital.
