To sustain the business momentum while addressing the inflationary challenges, the country’s largest coal miner, Coal India Ltd., is looking for some increase in feedstock price. Coal India is trying to build consensus among its stakeholders for the same.
Though they did not spell out the quantum of increase required, indications are that Coal India will be more comfortable with an increase similar to what it had in 2018, which was about 10 per cent.
A price rise is important not just for maintaining profitability but to ensure adequate supplies are available to meet the country’s coal demand, according to company officials .
Trigger
“The international price is not the trigger, as it is very steep—four to five times higher than our price. What we are looking at is some price increase so that we are adequately compensated for whatever inflation that has taken place since the last increase in 2018,” Coal India Chairman Pramod Agrawal told businessline when asked about the trigger behind this thinking.
Coal India, which last increased coal prices in January 2018, has been highlighting the need for a price hike so as to adequately compensate for the increased inflation leading to a cost push, especially on diesel and explosives, and a rise in wages.
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CIL has registered a nearly 69 per cent rise in net profit for the quarter ended December 31, 2022, on the back of higher realisations, particularly from sales under the e-auction platform. This steep rise in profit came on the back of a higher add-on over the notified price in the e-auction sale of 14.65 million tonnes (mt) of coal during the quarter under review.
However, moving forward, a price rise would be essential for the financial stability of its subsidiary companies and safeguarding the bottom line.
‘Subsidiaries suffer’
“When we say CIL is in profit, we say that some of the subsidiaries are in profit, but there are three subsidiaries that will suffer if a price rise does not take place. They may not have adequate capital to invest if that takes place, and they may come in red. So a price rise is required not only for the profitability of Coal India but to ensure that in the future adequate coal is available to the country,” Agrawal said.
Three of its subsidiaries, namely Eastern Coalfields Ltd. (ECL), Bharat Coking Coal Ltd. (BCCL), and Western Coalfields Ltd. (WCL), may particularly feel the financial pinch.
A number of projects were not sanctioned because the companies were not getting the required return on capital based on the calculations based on the current coal prices. “So if a price increase takes place, many of these projects may get sanctioned, and it will ensure that future coal supplies are regular,” he added.
There are certain areas, especially in ECL, where good-quality coal is available. And that quality of coal may have to be imported if the price increase does not take place, as then it cannot extract the coal. This will again result in more imports of higher-grade coal in the future. Moreover, if any company gets into the red (makes losses), it leads to demoralisation and affects production.
“So for increasing and stabilising production, we need a price rise. There can be lot of profit in MCL, NCL and other companies but we cannot transfer money from one company to another,” he said.