Contrary to widespread speculation, Coal India Ltd (CIL) may not resort to another round of coal price hike in 2011 to provide for the anticipated increase in wage cost in the forthcoming National Coal Wage Agreement IX (NCWA). While scope of increasing production during the year is limited, according to sources, the company management is trying to meet the additional revenue requirement through part-liquidation of its 70-million-tonne pit head stock.

The deciding factor of this initiative is the improved outlook on availability of rakes. The CIL Chairman, Mr N.C. Jha, recently said that as against an average availability of approximately 156 rakes a day during the last fiscal, the company has received a little over 180 rakes a day so far in April. Considering an average carrying capacity of each rake as 3,700 tonnes, the additional rakes should help company to sell over 2.5 million tonne of more coal month by liquidating the inventory, even without any production growth.

Considering that the inventory is accounted in CIL accounts at historic production costs, the average realisation on liquidation of inventory should be higher than the realisation of freshly mined coal. The revenue position would get brighter, if railways can offer more rakes, helping liquidation of stocks at a faster rate.

Wage cost provision

CIL enters into five-year wage agreements with the labour unions. The existing agreement will come to a close in June. While negotiations for the next agreement (2011-16) will begin in end of the current quarter or early next quarter, sources say that CIL is expecting a 20 per cent increase in annual labour cost from approximately Rs 25,000 crore.

Considering an annual incremental cost burden of Rs 5,000 crore, CIL is planning to provide at the rate of Rs 1,250 a quarter beginning July-September 2011.

The aim is to realise these revenue from higher sales. The profit growth will be maintained as the company's average price of coal has increased by 12 per cent beginning end February 2011.

e-auction realisation

To add to the initiative the e-auction has fetched 60 per cent higher price in April over a floor price which itself is 40 per cent higher than the last fiscal. “Our overall realisation from e-auction has increased in April compared to not merely the same period last year but also the January-March quarter,” a company source said.

According to sources, the Plan Commission had advised the company to offer 20 per cent of the total production on the e-auction as against the existing 12 per cent. However, the step was not so far encouraged by the Union Government as it could fuel inflation.

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