With a 24% increase in its wage bill, government-owned Coal India Ltd (CIL) is looking for a price hike to protect its bottomline.
CIL officials told FE that the coal behemoth had last increased coal prices by 10% across all categories in December 2007, but costs, especially on wages, have escalated. With the implementation of the national coal wage agreement, liabilities are estimated to be around Rs 8,500 crore over five years.
While profits before implementing the national coal wage agreement was estimated at Rs 10,000 crore in 2008-09, a jump from Rs 8,000 crore in 2007-08, after implementing the coal wage agreement, net surplus is expected to go down to Rs 5,000 crore.
CIL has not yet come out with its annual and fourth quarter results in view of the ongoing elections.
The company is looking for a 15% price hike for coal supplied from Bharat Coking Coal Ltd, Eastern Coal Fields Ltd and Central Coal Fields Ltd and 10% for coal from Mahanadi Coalfields Ltd, Western Coalfields Ltd, South Eastern Coalfields Ltd and Northern Coal Fields Ltd. CIL has noted that despite the proposed price hike, coal produced by its subsidiaries would continue to be cheaper compared to imported coal.
The company has submitted a case study to the coal ministry that energy price in terms of cost per million calorie for using imported coal at the power stations in the National Capital Region (NCR) was Rs 815 whereas the cost, with coal supplied from CIL after price revision would be between Rs 484 and Rs 545.
Similarly, Maharashtra State Electricity Board (MSEB) would face an energy price of Rs 764 per million calorie using imported coal against Rs 320 by using F grade CIL coal from Mahanadi Coal Fields Ltd after price escalation.
Thus, CIL officials are making a case that even after the proposed price rise, CIL coal would be cheaper by 21% to 57% for various grades compared to imported coal.
Although there are arguments that an increase in the price of coal would cause a rise in the cost of power production, which ultimately has to be passed on to end consumers, officials claimed with the earlier 10% increase in coal prices, there was less than 1% impact on the cost of power. Coal accounts for 40% of the input cost of producing power, officials said.
In fact, lower cost of domestic coal has increased demand and increasing supplies at a lower cost would put pressure on margins, officials said.
CIL, since 2007, has been looking for import parity prices on the gross calorific value (GCV) platform but with the opposition from the power sector, which accounts for around 80% of the total offtake CIL produces, the coal ministry had asked CIL to fix prices on the useful heat value (UHV) platform.
NC Jha, technical director, earlier told FE that GCV represents maximum energy that can be derived from a fuel and its heat ratio (the difference between the highest and the lowest heating value).
He said that around 1,300 UHV equals 3,000GCV, which commands a good price in the international market. But Indian coal of 1300 UHV is considered inferior despite having high calorific value because it has high ash content. Officials said that GCV is internationally accepted as a basis for pricing and in India too that should be the parameter for pricing.
Under UHV, even for the lowest grade of coal with high ash content, there is a bandwidth up to 840kcal. This bandwidth can be broken and more grades created for a better price realisation. Although CIL and power major NTPC Ltd have been working to create at least 20 sub-grades from seven existing grades under the UHV platform, the project has not yet seen the light of day.
So CIL is once again trying for another round of price revision on the UHV platform, officials said.