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NTPC Ltd is planning to step up its negotiated purchase of low-ash (A and B grade) Ranigunj coal from Coal India Ltd from 2.5 million tonnes to five million tonnes. Negotiates sales (also referred as sales through memorandum of understandings) were one of the major contributors to CIL's profit during the October-December quarter.
Available in very small quantities (10-11 million tonnes) in the Eastern Coalfields Ltd, a wholly owned subsidiary of CIL, the low-ash A and B varieties have a heat value of 5,600-6,400 kilo calorie, comparable to South African coal. In October 2009, the Centre allowed ECL to charge ‘import-linked' prices for such coal.
Fresh supplies
According to sources, NTPC has expressed interest in getting additional supplies of 2.5 million tonnes a year from Shonepur Bazari open cast mines of ECL. Both the companies are expected to enter into an MoU in this regard shortly. This is over and above NTPC's existing annual purchase of 2.5 mt of Ranigunj coal at negotiated price.
Confirming the move, an NTPC source said domestic low-ash coal is used as an import substitute by the company. “Apart from the price advantage, domestic sources are always preferred over imports on availability concerns,” the official said.
NTPC consumes approximately 160 million tonnes of coal — including 12 million tonnes of imported varieties — annually to generate 33,000 mw of power.
High price
While the details of the price negotiation between CIL and NTPC are not known, sources told Business Line that that the coal major has fetched an average price of approximately Rs 4,000 a tonne on negotiated sales during this fiscal.
Assuming an average landed price of South African coal at $ 100 a tonne and an exchange value of Rs 45 a dollar; a back-of-the-envelope calculation suggests that CIL is selling Ranigunj coal at 10-11 per cent discount to the imported coal.
According to sources, CIL is expected to sell nearly 5.5 mt of coal at negotiated price during the first nine months of 2010-11.
Considering CIL's average return of approximately Rs 1,100 a tonne on the total sales, negotiated sales have generated an additional revenue of nearly Rs 2,900 a tonne, leaving a net positive impact of approximately Rs 1,600 crore on the bottomline during April-December 2010.
In other words, nearly a quarter of the Rs 6,646 crore net profit of CIL during April-December 2010 was contributed by negotiated sales.
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