Availability of coal will increase next year, says CIL Chairman

Pratim Ranjan Bose Calcutta | Updated on March 18, 2011

Mr Nirmal Chandra Jha, Chairman and Managing Director, Coal India

A mining engineer by training and the Director (Technical) of Coal India Ltd (CIL) since January 2007, Mr Nirmal Chandra Jha knows the company like the back of his palm. He has assumed additional charge of Chairman and Managing Director on March 1.

In an interview with Business Line, Mr Jha explains the rationale behind the sharp increase in prices for the de-regulated sector, and addresses the concern on quality and measures to increase the availability of coal.

You recently increased prices by 30 per cent for the de-regulated sector. Don't you think that the rise is a bit too steep?

We sell 77 per cent of our production to the power sector. We left it out of the ambit of price rise as power is not sold at competitive prices. Another 12 per cent is sold through e-auction at market determined price.

We have enhanced prices by 30 per cent for the residual 11 per cent of our supplies made to sectors like steel, cement and others.

I admit that the rise was apparently steep for this segment.

However, it was done with the understanding that these sectors operate in a competitive environment.

Accordingly, we expect that they should pay us the minimum price payable through e-auction (the floor price in e-auction was 30 per cent higher than the notified rates).

Considering the availability concerns, don't you think that the enhancement in the notified prices for the deregulated segment would push up prices on e-auction also?

I don't think so. There was an availability concern during 2010-11 primarily due to our unexpectedly low growth. However, the next year we will definitely improve upon our performance, and availability will increase.

Your consumers complain that while you are increasing prices, the quality of CIL coal is of grave concern. How do you respond to this criticism?

For A and B grade coal wherein we are charging import-linked prices, we have now offered the opportunity of joint sampling to all our customers. Earlier this facility was limited to only large consumers buying in excess of four lakh tonnes per annum.

With regard to concerns on heat value and ash content; you must remember that in India coal is sold on the basis of useful heat value (UHV). This is different from the international standard of gross calorific value.

In the international market the price of coal varies with slight change in heat value. On the contrary, in India the UHV bandwidth of different grades of non-coking coal vary from 600 Kcal a kg to 1100 KCal a kg. In other words, our product nomenclature includes a 4 per cent variance in ash content to the minimum.

We tried to adopt the international standards in defining the grades by reducing the bandwidth, etc. However, our consumers did not agree.

On the size and shape of coal delivered, we have recently taken a Board decision to not supply any uncrushed coal beginning 2011-12. In case uncrushed coal is supplied, at the insistence of the customer, he should not pay the crushing charges.

You have enhanced prices of MCL coal by a flat 20 per cent for all consumers (de-regulated sectors to pay 30 per cent extra) to bring it on a par with the prices of SECL. However, your consumers feel MCL coal is of inferior quality to the corresponding varieties of Raigarh coal. How do you justify this price rise?

We had been losing on MCL coal for the last 15 to 20 years even though it is of the same quality as that of Raigarh coal. It took us 15 years to ?correct' the anomaly. The prices of MCL coal was originally pegged lower as there was little demand for the same. However, that situation does not exist anymore.

I think the concerns expressed by our customers are more of a perception problem. MCL coal is generally produced through surface miners. Naturally, it is of more uniform size and quality compared to the coal produced by way of blasting in many other collieries.

It is understood that you have to invite tenders once again to procure 56 dumpers of 190 tonnes each for ECL and NCL, leading to delay in procurement. Wouldn't this impact your production plans?

The 190-tonne dumpers (to be backed by 20 cubic metre shovels) are primarily used in transportation of overburden material (earth) from the opencast mines. Initially Northern Coalfields tried to procure the dumpers on its own but without much success.

To extract better price we clubbed the requirement of Eastern Coalfields with Northern Coalfields', making the contract size bigger. However, as per the recommendation of the independent external monitors we recently cancelled the tender.

The dumpers were necessary to ensure production growth of opencast mines. This is especially true of Northern Coalfields (contributing more than one-sixth of CIL's production), which had lost nearly 5.5 million tonne production opportunity in 2010-11.

Also, in the absence of dumpers, our fleet of 20 cubic metre shovels (the equipment that fills the 190 tonne dumper) remained idle.

Under such circumstances, I have advised Northern Coalfields and Eastern Coalfields to try using the shovels in loading the 240-tonne dumpers.

Northern Coalfields is comfortable with the idea. If the process is successful we may not require the 190-tonne dumpers and may instead go for procurement of more 240-tonne dumpers.

As a stopgap arrangement, Northern Coalfields has started outsourcing the job of overburden removal.

We are, therefore, not expecting any production loss on account of non-availability of dumpers during 2011-12.

How are you planning to solve the coal transport logistics issues?

In India 50 per cent of coal moves by rail. The share of merry-go-round (MGR) is more or less stagnant at 20-22 per cent. In view of the location map of customers there is not much scope of movement by MGR either.

Movement by conveyor belt is a customer specific option and should not be considered as a logistics solution. This leaves us with the alternative of movement by road which is increasing as much as 10 per cent a year.

Traditionally the movement by rail used to grow by 6-6.5 per cent year. Even at this rate our pit head stock was moving up by approximately 2 million tonnes a year.

The situation turned for the bad due to dismal growth in rail traffic in the recent years, especially during the last three years.

Coal movement by rail grew by 1 per cent in 2008-09, 1.5 per cent in 2009-10 and this year it may clock 2.99 per cent leading to a rise in pit head stock by 20 per cent.

While our production has largely remained flat during 2010-11, the pit head stock is set to move up 11 per cent from 63 million tonnes to 70 mt (16 per cent of annual production). The underlying assumption is: Had we produced to the projected levels, the pit head stock would have gone up by 30 mt or nearly 50 per cent.

We have already taken up the issue with the railways. For smooth movement of coal we need 205 rakes (freight trains) everyday. We are now getting 185 rakes a day. The annual average for 2010-11 stands at 167 rakes (nearly 20 per cent short of requirement).

We are expecting an improvement in the scenario in the coming months.

Railways often blames CIL for uneven supplies. It is argued that you utilise fewer rakes than allocated during the first half of the fiscal and step up demand in the second half.

Climatic conditions impact mining. This is beyond our control. For example during the peak summer months, the Orissa Government issues embargo on working under the sun in the afternoon. Similarly, mining activities are bound to be impacted during the rainy season. Naturally, larger part of the production (55 per cent) comes in the second half.

We are now procuring shovels and dumpers with air-conditioned cabins to continue operations in summer. However, this may not solve the entire problem as the trucks outsourced to carry coal from the mines to the railway sidings are not air-conditioned.

We will try to persuade our transporters to introduce new generation trucks but I am not sure to what extent we will be successful.

However, we expect an overall improvement in coal movement to the railway sidings from next fiscal. Earlier we used to enter into annual contracts with the transporters through tendering.

The administrative delays to finalise the tender often led to tardy movement of coal in the early summer months. To streamline the system we are now entering into three-year contracts.

Will you resort to another round of price hike to absorb the impact of the forthcoming wage agreement?

It is too early to comment on the issue. The National Coal Wage Agreement IX is due from July 1, 2011, and there may be substantial increase in the wages. We will look into resource mobilisation issues when the time comes.

Published on March 17, 2011

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