Sharp increase in powergrade coal price to boost CIL profits by ₹2,500 crore a year

Coal India on Tuesday announced one of its sharpest price hike on power grade coal to boost annual revenue by ₹6,421 crore. The price hike comes on the back of ₹50 a tonne levy, announced in December, netting ₹2,500 crore a year. A CIL official put the average price increase at 10.26 per cent.

Overall, CIL’s revenue got an annual boost of ₹8,900 crore. Of the total, ₹5,600 crore will be used in meeting incremental wage bill of 3 lakh workers who were rewarded with 20 per cent salary hike in October. An estimated ₹800 crore will go to officers in the form of higher salary.

CIL will enjoy ₹2,500-crore annual boost in profits without any improvement in operational efficiency. CIL shares ended the day 5.63 per cent higher at ₹304.05 on the BSE.

The cost of this monopolistic price revision is likely to be borne partly by sections of IPPs who have limited ability to recover costs in the absence of long-term power purchase agreements, partly by Discoms who are way behind in recovering electricity cost from consumers and partly by electricity consumers.

. The official put the average impact on electricity prices at 6.7 paise per kWh (kilowatt hour).

But this is far from the actual picture. Prices of top and lower grades were reduced because they were hugely over priced when compared to landed cost of imports and didn’t find many takers. By reducing prices, CIL made its top varieties marketable. On the contrary, it passed the whole load on power consumers.

According to details revealed by a consumer association, grades between G6 and G14 witnessed price hike. Hike is marginal, ranging between three and four per cent for G8 to G10 grades. The rest witnessed sharp hikes ranging up to 22 per cent.

Rating agency ICRA described the price hike as a ‘negative development’. “The price of thermal grade coal with gross calorific value (GCV) of 3100 kcal/kg to 4300 kcal/kg for supply to power sector has been increased by about 15-18 per cent. This along with the levy of ₹50 per MT is estimated to increase the cost of generation for coal-based power plants by about 13-15 paise/unit,” an ICRA press release said.

ICRA pointed out that for IPPs without long-term PPAs and having exposure to short-term PPAs, “the profitability will be negatively impacted” with rise in coal price and indicated that it would be an uphill task for Discoms to recover the increased cost of power.

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