The decision of Coal India to increase prices, according to sources, will inflate the company's revenues by approximately Rs 6,000 crore by way of increasing the average return by 12 per cent from the existing Rs 1,134 a tonne.

However, the net impact on the bottom line may be restricted to approximately Rs 1,000 crore a year; due to increased labour and social welfare costs. In fact, sources caution that the profits of the January-March 2011 quarter may be impacted due to higher provisioning.

Sources say that the employee cost, which has already increased to nearly 50 per cent of total expenditure from as low as 45 per cent during the last fiscal, is set to move up beginning July 2011. The inflationary pressure alone has increased the salary and wage cost by 10 per cent in 2010-11.

“The five-year national coal wage agreement negotiation will expire in June 2011. While the negotiations for the next agreement is yet to start, we will start providing for the prospective wage increases beginning next fiscal,” a CIL source confirmed. Wages moved up by 24 per cent during the last revision.

Moreover, the company will start providing at the rate of Rs 6 lakh per hectare – beginning the current quarter – to the Coal Controller as cost of land restoration once the mineable reserves in the open cast mines are exhausted. CIL controls roughly 1.4 lakh hectares. The provisioning amount will be decided based on life expectancy of different mines.

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