Coal India may tweak prices to avoid losses

It may be time for Coal India Ltd to tweak prices.

The State-owned coal miner saw dwindling profits in the last three quarters, largely due to a drop in sales.

And now, a part of the company’s despatches to its single largest consumer, NTPC Ltd, is found to be of lower calorific value than previously assumed.

Against this background, the company has little options but to raise prices of coal to avoid financial losses, say sources.

Following tight implementation of quality assurance norms through introduction of third party sampling and adequate provision of Bomb calorimeters (the instrument to measure the calorific value) at mines, it was noticed that around 7.5 per cent of CIL’s 141-million-tonne despatches to NTPC are of inferior grade than projected.

It means CIL will get lower amount of proceeds from NTPC than the estimated ₹32,000 crore at the current prices. The financially weak Eastern Coalfields, a subsidiary of CIL, is expected to be particularly impacted as supplies from its limited number of opencast mines recorded higher incidence of grade slippage.

Burdened with large number of loss-making underground mines, Eastern Coalfields is dependent on opencast mines at Rajmahal in Jharkhand, and Shonpur Bazari in West Bengal for profits.

CIL officials remained tight-lipped on pricing issues.

The grade slippage apart, CIL’s bottom line is under pressure due to lower off-take by financially weak state generation utilities, following the strict implementation of ‘cash-and-carry’ norms that offer 15 days rolling credit.

Though the norm was in force since early 1990s, it was never strictly implemented on the State-owned power generation sector. However, the recent controversy of non-payment of dues, by a section of power producers including NTPC and Damodar Valley Corporation, made a difference to the practice.

As CIL enforced the norms since October 2013, State government-run utilities went slow in stocking coal to reduce pressure on working capital.

The situation was further complicated by low demand for electricity on grid till a couple of weeks ago.

The net result is that CIL’s volume sales dropped by 2.8 per cent in the October-December 2013 quarter.

The situation may witness some recovery in the current quarter due to the onset of the poll season.

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