Coal India goes for mine-specific supply policy

Coal India has adopted a policy to offer mine-specific supplies to large consumers at a minimum of 10 per cent risk premium over the notified price. The new policy has come into effect from this month.

While the aluminium major Hindalco Industries has become the first beneficiary of the policy, CIL officials expect the mechanism to be popular among consumers, who may prefer supplies from sources closer to the production facility so as to reduce the freight cost as well as the average time spent on transportation. As an added advantage, it would ease the pressure on the Indian Railways.

Shift from NCDP

According to the CIL Chairman, Mr N.C. Jha, while making the company accountable for meeting the country's coal requirement, the National Coal Distribution Policy granted Coal India the freedom to decide on the source of coal.

“Since the supplies are currently made through firm agreements (FSA) with binding penal clauses, we prefer to supply to each consumer from multiple sources, thereby reducing the risk of paying up penalties in the case of operational setbacks in a particular mine,” Mr Jha said.

In reality such “sources” were often far away from each other as well as the production facility. For example, Hindalco which has its smelter at Renukoot in Uttar Pradesh was offered supplies from different mines in Jharkhand.

According to the new policy approved by the CIL board of directors earlier this month, consumers may henceforth approach the coal major for supplies from a source of their choice but, at an added cost.

Risk premium

According to Mr Jha, as per the latest decision, the consumers will have to share the benefits (on accounts of primarily freight cost) of sourcing coal from close proximity on 50-50 basis with CIL, subject to a “minimum benefit of 10 per cent overt the notified price” for Coal India.

Also the company cannot lift more than 70 per cent of the production of a particular mine. There are restrictions as well on the logistics solutions to be used for transportation.

“Companies adopting such mechanism cannot opt for road transportation and have to set up either merry-go-round (MGR) rail networks or other such greener options,” the CIL chairman said.

Hindalco's choice

According to CIL, the Rs 23,800-crore Aditya Birla flagship approached the coal major with a request for sourcing its (Hindalco's) entire requirement from the Krishnashila mine in the Northern Coalfields, in close proximity to the Renukoot facility.

“The request has inspired us to draft a policy for all,” the CIL official said. Comments of Hindalco were not available.

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