Coal India Ltd (CIL) is working on a new strategy to unleash its hidden value as India shifts to a low-carbon trajectory. The company has planned to set up 111 million tonnes of coal washing capacity that will help the domestic power sector to contain its expanding carbon footprint while CIL will get better prices.
To enhance capacity, the company will set up 20 coal washeries. It has already awarded contract for setting up a 5-million-tonne-capacity washery. ?We have planned to set up 20 coal washeries with 111 million tonnes of capacity, of which five-to-six projects are in the tendering stage,?CIL chairman Partha S Bhattacharyya told FE.
?We expect to award contract for the second coal washery by the end of this quarter,? Bhattacharyya said.
The Indian coal has a high ash content and so its calorific value is lower than imported coal. Ash content is removed in washing, which will make coal transportation easier. It makes commercial sense for power plants located at long distances from coal pitheads to use washed coal, which is priced higher than raw coal. ?The quality of washed coal will be comparable with coal imported from Indonesia. So we will benchmark its pricing against the Indonesian coal,? Bhattacharyya said.
However, international coal market is prone to price volatility. If the price of CIL?s washed coal were to vary daily in line with Indonesian coal, electricity tariff could also see sharp fluctuations.
To insulate Indian electricity consumers from coal price volatility, CIL plans to have a provision for yearly or half-yearly revision of its washed coal prices.
India?s largest coal producer is also working to further cut its cost of coal production by implementing measures like reduction of surplus manpower. The company?s staff strength was 5,800 ten years ago, which it has brought down to 3,096. ?We expect a significant reduction in manpower over the next ten years,? Bhattacharyya said.
CIL has reduced its cost of production after the government deregulated coal pricing in January 2000. Ten years back, imported coal would be cost competitive vis-vis CIL coal in coastal areas because of low shipment cost. But since then, cost competitiveness of imported coal has eroded. Now CIL coal is cheaper than imported coal even in coastal areas.
This is because the price of CIL coal has been quite stable during these years while the price of coal in the global market has shot up.
The price of the domestic coal rose at a compound annual growth rate of 4.9% in the last five years while wholesale inflation rose 5.9% CAGR.
Coal was the only commodity of which price grew less than inflation. Coal prices are notified by CIL from time to time. It has a fairly conservative policy on coal pricing. ?We increased coal prices only when there was a shock on the cost side that was impossible to offset with productivity. We always kept the consumer interest foremost in our policy?, the CIL chief said.
CIL accounts for 82% of domestic coal production, which meets about 53% of India?s primary energy consumption needs. CIL has been supplying coal at a highly affordable price, at half the price of imported coal. And that too without any subsidisation. The company is importing coal on behalf of utilities. It is a new business for the CIL. The company sees coal trading as a growth driver for the company in the coming years.
