The Hindu Business Line : CIL plans broad-basing of product range

Having failed to convince the Centre for a switch-over to the internationally accepted gross calorific value-based gradation for its produce, Coal India Ltd (CIL) is now hopeful of broad-basing its product range from the existing eight grades to approximately 30 varieties within the set parameters of useful heat value (UHV)-based gradation system. The switch-over is likely to take place in the next six months.

The proposed product range will narrow down the UHV within the grades from the existing band of 900-1,100 kilo calorie (K Cal) to 200-300 K Cal. Coupled with the present move to switch over from linkage to the fuel supply agreement (FSA) regime, the broad-basing of product range with separate price tags for each variety, if approved by the Centre, will improve CIL’s earnings substantially in the future.

“The existing calorie band between the grades is a built-in disincentive for producers for not attending to quality. Redefining the product range will address the issue,” a company official told Business Line.

He, however, adds that such classification for raw coal may be done away with once CIL attains its vision of supplying only processed (washed) coal in the future, thereby creating an environment for a move to gross calorific value-based product classification.

Meanwhile, CIL is targeting implementation of FSAs latest by May 15. Apart from introducing better discipline in the coal supply scenario in the country, the new regime is expected to substantially reduce the working capital requirement of CIL due to better inventory management. “Lack of opportunity to plan production leads us to a situation whereby we are saddled with huge inventories. In fact we are headed to end 2007-08 with a stockpile of 48 million tonnes (mt), approximately 5 mt, higher than that of the previous year,” says Mr K. Ranganath, Director (Marketing) of CIL.

In other words, CIL maintained approximately 13 per cent of its estimated production of 380 mt in 2007-08 as inventory.

On the contrary, the FSA regime will require CIL to maintain inventory of 21 days, amounting to approximately 25 mt or 6 per cent of the targeted annual production of 405 mt, in 2008-09.

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