Coal India’s dilemma: Centre pushing for output targets amid falling offtake

Production planning usually depends on sales growth. But it is different for Coal India Ltd.

At a time when large state-owned power utilities in a number of northern States are going slow on coal purchases, the Centre is pushing CIL to meet the production targets set by the Ministry with little regard to the offtake of the fuel.

According to sources, prodded by the Finance Ministry for failing to achieve targets, the Coal Ministry recently rapped Coal India for slow progress on mining.

The coal PSU recorded a marginal 0.4 per cent growth in production in the April-June quarter as sales rose a mere 2 per cent. This is against the annual target for 6.6 per cent production growth.

Though fuel sales improved in July, the overall demand remained subdued due to lack of buyers for electricity at remunerative price on the national grid. NTPC alone has reported idling 5,000 MW of capacities the past few months. More capacities are idling with private sector producers and State government utilities.

With nearly 40 million tonnes of inventory (as on June 30), CIL feels giving a push to production will only lead to stocks piling up at the pithead and wastage of resources.

Costly proposition

Coal can catch fire if left in the open, resulting in fast erosion in its energy content and market price. And, with the introduction of calorific value-based pricing and the recent controversy on quality of supplies, miners may be forced to absorb losses if they keep adding to the inventory, as was the practice till 2011-12, when 71 million tonne or one-sixth of CIL’s annual production was stored in remote coalfields not connected by railways.

Company sources admit that the lopsided focus on production also created opportunity for a section of employees to inflate production figures.

The change came in 2012-13, when CIL focussed its energy on offtake to ensure availability of coal to power plants. For the first time in decades, inventories dropped a sharp 20 per cent to 57 million tonnes.

To bring it down to a more reasonable level and clear the balance-sheet, CIL requested the Coal Ministry to set the trigger for 2013-14 on offtake, and leave it to the company to decide on production. The aim was to make managers accountable for despatches through corresponding changes in internal reporting norms.

But the Government rejected the proposal. CIL’s fate was once again linked to production growth, from 452 million tonnes in 2012-13 to 482 million tonnes in 2013-14.

And, if the Government insists on production targets, CIL will go back to the days when higher production only meant pithead stock pile up.

A company official, however, insists that the aim is to bring down the inventory level by another 10 million tonne this year.

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