The just-concluded fiscal year was a challenging one for Coal India (CIL), with the company having to cope with demand decline and import substitution, even as it faced issues with coal quality.
CIL chairman and managing director Pramod Agrawal speaks to Indronil Roychowdhury about how the company managed the difficulties, and the challenges awaiting it in the new fiscal year.
We responded to the situation with resilience. During the lockdown, we felt a decline in demand, but were still required to stimulate supplies through out-of-the-box measures. We focussed on increasing e-auction volumes, rather than premiums. We have closed the year with 124 million tonne of e-auction allocation.
We relaxed conditions to attract customers: the trigger level or minimum assured quantity has been raised from 75% to 80%, coal up to 120% of annual contracted quantity (ACQ) has been offered. ACQ was raised to up to 100% of normative requirement for power sector consumers. Also, power sector FSAs have been signed without link to performance, and flexible lifting was allowed for non-regulated sectors throughout the year. All these measures kept our sales buoyed to some extent.
We ended FY21 producing 596 MT against last fiscal’s 602.1 MT. Our offtake in FY21 fiscal has been 573.8 MT against last fiscal’s 581.4 MT. Also, the demand shrinkage from our major coal consumer, power sector impeded supplies while increasing coal inventory at pitheads to over 99MT. Enhancing production would only have made our stocks piles higher.
Do you think commercial mining will end to CIL’s monopoly?
The apprehension that commercial coal mining would destabilise CIL is unfounded. Under Atmanirbhar Bharat, the aim behind the entry of private players in commercial mining is to ramp up indigenous coal output and meet the domestic demand in a self-reliant manner by reducing import dependency and forex outgo. In that sense, it is a welcome move. I do not see any conflict between CIL and private players.
We continue to operate within our own competent sphere, maintaining our leadership status. Key issues that will help us stay ahead are established infrastructure, streamlined operations, uniform coal quality, cost efficiency and reliable, timely delivery. If there are some mutually beneficial common causes (with private commercial miners) like developing common areas or infrastructure, we may perhaps take a call on those on a case-to-case basis.
The government’s focus has been on import substitution. How has CIL helped this initiative?
CIL has enabled import reduction to the tune of 90 MT in FY21. We opened a new auction window in October exclusively for customers importing coal and booked 7.5 MT. We allowed our coal companies to sign MoUs, under import substitution, with 17 power plants linked with them. Under this, over 11 MT was offered. We offered 9.7 MT of additional coal to state and central generating companies under a flexi-utilisation policy, enabling them to reduce coal imports. Additional coal was offered to the non-regulated sectors against fuel supply agreements of up to 100% of annual contracted quantity. Of course, freight cost increase and rise in international prices could be supplementary factors that helped curb imports.
Issues relating to coal quality have once again cropped up. But you claim Rs 660 crore this fiscal as net quality bonus. How will you settle this disagreement?
Indian coal is heterogeneous due to its drift origin and the calorific value of coal extracted from the same seam at different points tends to vary, since a seam is extended. Moreover, CIL doesn’t declare coal grade, but the Coal Controller’s Office does it annually. This at times leads to downgrading or even upgrading of declared grade quality within the seam.
We have reassessed coal grading of 35 high-capacity mines contributing 71% of the total production, and there were no grade variations in the mines of four subsidiaries and minor variation in the mines of three subsidiaries. Of the 374 mines reassessed last fiscal, gradation remained unchanged in 335 mines. Upgradation happened in 15 mines. Around 50% of our total production is done with surface miners entailing blast-free seam exposure, which leads to better quality output. We have online ash analysers in NCL and MCL minesfor real-time quality assessment.
We use mobile crushers for sized coal. Thereafter, we carry out authorised third party sampling and provisional billing on declared grade.
Sometimes, Indian coal prices are higher than imported coal owing to rail freights and statutory levies. Isn’t this hampering import substitution?
Although CIL offers coal at considerable discount, the statutory levies and high rail freight makes landed cost of CIL’s coal less competitive than coal sourced from abroad. It would help CIL serve the nation better if some freight concessions are allowed to customers located between 701 and 1,400 km. Most of our customer concentration is within the said distance. Taxes and levies on domestic coal are relatively high compared to coal of similar GCV sourced from abroad. If there is a relook at levies and tax rationalisation on domestic coal, it would be a shot in the arm for CIL’s import substitution efforts. GST compensation cess at `400 per tonne is also another factor that could be looked into.
The government has already proposed forming a coal exchange. What is your take on it?
The proposal is at a nascent stage, but it would be on the lines of commodity derivatives exchange. The e-trading platform will discover transparent pricing, with demand and supply being the driver. A unified coal trading platform can help increase marketing and usage of domestic coal. It may lead to better price discovery and have faster sales cycles. It would have wider reach to consumers across the country, including smaller traders and buyers. Price negotiation and counter-offer facility can help increase sales volume.
What are the challenges awaiting CIL in the new fiscal? Where is CIL going to go five years down the line?
The major near-term challenge is depleted demand for coal. Wage revision of non-executive employees will be effective from July 1, but large manpower reduction will have a stabilising effect and so the wage bill effect may be flat. Increasing outstanding receivables is also a big challenge to us, though there is no debt risk since most of it is from Central and state gencos.
Five years hence, CIL would continue to be vibrant, maintaining its dominant role in meeting the major portion of the country’s primary commercial energy needs. Our percentage share may decrease gradually, but in absolute terms we would still be an energy leader.
