The Hindu Business Line : Forward auction may save Coal India Rs 500-700 cr

Kolkata, April 10 The proposed forward auction of coal is expected to leave Rs 500-700 crore positive impact on Coal India Ltd’s bottomline in 2008-09. This will also help the company to minimise the impact of the five-year coal wage agreement (NCW-VII) during the year.

While the wage negotiations are yet to be completed, according to available estimates a modest 15 per cent increase in wages would leave burden of Rs 1,400 crore on CIL on account of arrears and others during this fiscal. The actual burden, however, will depend on the award.

CIL had awarded a 22 per cent hike in wages and salaries during the last agreement for a period of 10 years.

A senior company official said that the company was expecting to minimise its losses on underground mining operations by approximately Rs 500-700 crore by selling roughly one-third of the underground coal production through forward auction.

The auction is expected to set the reserve price at 50 per cent higher than the existing notified prices for underground coal.

Available estimates suggest that the company loses approximately Rs 3,000 crore annually on underground operations as the average notified price is Rs 800 per tonne against a production cost of Rs 1,800 per tonne.

The company produced 43.5 million tonnes of coal from underground mines in 2007-08, approximately 12 per cent of the total production of 379.49 mt.

Compared to a 5.1 per cent growth in total production underground production has increased by a mere 2.17 per cent compared to the previous year.

Irrespective of its insignificance to the overall coal production, for the first time in last six years, CIL could arrest a steady decline in its underground production. In 20060-07 the underground production dropped by 24 per cent.

To reverse the trend, the company has taken up a Rs 5,000-crore project to increase the underground production to 67 mt in the terminal year of Eleventh Plan.

The project includes introduction of modern technologies like longwall and high wall, acquisition of continuous miners and others. The project is expected to reduce the cost of underground mining by approximately 40 per cent.

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