The world?s largest coal-producing company Coal India is facing several challenges, ranging from increasing production and meeting supply commitments to maintaining its financial health. As the Indian and global economy sends out distressing signals on growth, CIL?s chairman and managing director S Narsing Rao talks to Indronil Roychowdhury about how it will overcome negative sentiments and increase production, and what it is going to do with its huge cash reserves of over R50,000 crore.

Even before you took over as the chairman, you told FE that your main thrust would be to increase production. What is the production status now?

As we speak, production growth is 5.6% and the off-take growth is 5.9%. But our asking rate for off-take growth is 7.5%, and we are not there yet. Given our first quarter fatigue situation, I think our growth is not bad and we will be able to catch up with our asking rate. Whatever off-take (470 million tonnes) we have targeted for the year, we will be able to achieve. Only, we need to put some more things in place first.

Since much of your achievement with regard to off-take depends on availability of railway rakes, do you see any improvement in the situation?

By and large, there has been some improvement. The Railways is a very complex operation and it is bound to be lagging somewhere or the other. There are 40-50 loading points and there are problems in transporting coal from the mines to the loading points. But there has been a 14% year-on-year growth in availability of railway rakes, at 178 rakes per day in June this year, against 158 per day in the corresponding period last year. To match our asking off-take growth rate, our requirement was an average of 195 rakes per day. But this has now gone up to 202 per day.

How will the uproar over the fuel supply agreement penalty clause play out?

The power ministry has expressed its reservation regarding the penalty clause and we have given our comments. We are standing by the decision taken by the board at the April 16 meeting. Now the government is intervening; let?s see what the coal ministry decides. We will work accordingly. So far, we have signed 27 FSAs and 22 are yet to be signed.

But the FSA signing isn?t going too smoothly, is it?

I have no authority today to make any changes in the clauses. The decision was taken by the board and I will have to go back to the board if I have to decide on any workable alternative. But the crux of the problem is in the 80% trigger level (Note: The trigger level numbers being talked about are likely to change since the interview took place). We are tied up by it and we had to put it in the FSA since it was a Presidential directive. Our shortfall estimated for the year is 45 million tonnes. Now, any agreement we sign, its basis is the preponderance of probability. You do your job and I do my job, failing which only there will be deterrence. But, from day one, I know there is going to be a 45 MT shortfall at an 80% trigger level and Coal India with its wisdom has decided on a formula to protect its finances. When we know that the best possible despatch we can do is 470 MT and achieving that itself is a Herculean task, how can we sign something committing more than what we can do? If I could have dispatched 515 MT, then I could have kept a 10% penalty at an 80% trigger level.

But NTPC has created the main FSA hurdle. Are you talking to them?

There is nothing to talk to NTPC about. NTPC is continuing to draw coal since we are not out of the MoU regime and there is no crisis for them in getting coal. They are unmindful about signing the FSA since they are not feeling the pinch. In one way, we are also not correct since we should ensure some discipline. We have updated our FSA, and it should be signed. But, you know, life doesn?t always follow the rule and the law. But the private sector players have largely signed. Some of the state utilities have signed but most of the public sector companies have not signed.

CIL?s coal is heavily discounted even after shifting from useful heat value (UHV) to gross calorific value (GCV). It is still far from import parity prices…

We never intended to price Indian coal at import parity prices. Our prices are fixed on the basis of the cost of production plus mark-up. Our government doesn?t charge for reserves. But companies in other countries also have to pay for reserves. This adds to the cost of coal. Adopting GCV was not for moving towards international prices but only for adopting international practices.

Coming back to production once again, has getting clearances for new projects become easier?

It is where it was. The 5.6% growth we have achieved has come from stretching production in our existing projects. Getting clearances is an ongoing process and when we work on 475 mines, some get closed and some start.

CIL has a huge cash reserve of R54,000 crore. Do you think it should be kept intact for earning interest or should this capital be meaningfully utilised?

Our objective is not to earn interest from reserves. Whatever interest we earn from reserves is incidental. But, frankly speaking, there are not very good investment opportunities available. It is not that there are opportunities and we are not investing. We need to get opportunities with manageable risks.

Still, with huge cash reserves, CIL could be aggressive about acquiring overseas coal blocks?

Activities are going on. But all these are long-term issues. We are only focused on increasing domestic production at present.

The government has asked you to import 45 million tonnes in 2012-2013 to fill in the shortfall. So, at what stage are your imports? Have you shunned plans for long-term imports altogether?

True, there is an estimated shortfall of 45 million tonnes for this year, but none of our consumers have asked for imported coal. So why will I import unless I get a demand from the consumers? At one point of time, we were talking of long-term imports, but downstream people are not really ready to hedge for long-term, say for10 years. The rupee has gone up to 56 against the dollar, so what would have been the situation today if we had made a long-term import booking, say, last year, at this time when the dollar was at R44.9? International prices are fluctuating, exchange rates are fluctuating. So one should not take risks by signing for a long term.