Coal India under financial stress as power sector dues mount

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Published: May 19, 2020 5:10:23 AM

At a time when the government is bringing in reforms to end Coal India’s (CIL) monopoly while also allotting funds to enhance evacuation following the setting of a target of producing 1 billion tonne by 2024, power sector dues have put the mining monolith under financial stress.

Some of the subsidiaries are forced to withdraw its fixed deposits before maturity, while also looking for credit lines to meet their working capital needs.Some of the subsidiaries are forced to withdraw its fixed deposits before maturity, while also looking for credit lines to meet their working capital needs.

At a time when the government is bringing in reforms to end Coal India’s (CIL) monopoly while also allotting funds to enhance evacuation following the setting of a target of producing 1 billion tonne by 2024, power sector dues have put the mining monolith under financial stress. Some of the subsidiaries are forced to withdraw its fixed deposits before maturity, while also looking for credit lines to meet their working capital needs.

Receivables 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 target 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 highest so far, encumbering the financial inflow of the company.

There is demand for further extending credit lines for coal supplies from the power sector which leaves the subsidiaries of CIL gasping for liquidity. The subsidiaries are already stretched thin financially but independent power producers are pushing hard for deferment of payments for coal supplies. The pending payments from both the state and central generating companies and independent power producers to CIL as a whole spiked up close to 37% in a three months span from Rs 12,423 crores as of January this year to Rs 17,000 crore as of April, an increase of Rs 4,577 crore, a source in the know said.

To ease the economic stress of its power utilities and other customers under the ongoing Covid-19 pandemic, CIL offered a slew of relief measures like usance of letter of credit (LC), contunance of supplies despite payment default, extending the validity period for lifting coal under power FSAs and all auctions without any penalty. But the mounting dues have put CIL in a financial bind that subsidiaries like Bharat Coking Coal (BCCL) and Central Coalfields (CCL) have become cash strapped and have been forced for premature withdrawal of fixed deposits. The subsidiaries have approached their bankers for loans to pay off salaries and wages and fund their working capital.

However, with the Centre announcing a liquidity infusion package to the power sector in order to help it tide over the cash crunch, CIL would look for payments of backlog supply dues to coal companies.

CIL’s outstanding dues from the power utilities stood at Rs 14,374 crore at the close of FY20. But in one month’s time the dues jumped up by Rs 2,626 crore, an increase of 18.3% by April 2020. Further delay would put CIL under a working capital crunch.

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