CIL seeks extension of freight concession for coal

Coal India Ltd (CIL) has sought for a freight concession of around 15 per cent to facilitate transportation of domestic coal booked by customers located 701-1,400 kilometres from its mines, under the import substitution scheme.

The move will help broaden CIL’s customer base by bringing in more consumers under the import substitution plans. The request is in line with the benefit given to iron ore, the company said.

“This step by CIL comes in the wake of a recent Railway Board decision which granted a 20 per cent distance-based concession in rail freight price for transportation of coal and coke, among other commodities, for distances in excess of 1,400 km,” said a press statement issued by CIL.

The concession is on normal tariff rate (NTR). However, after applying the concession, the freight price should not be less than the NTR for a distance of up to 1,400 kilometres. The freight price concession, which came into effect from July 1, will be valid till June 30, 2021.

“Extension of freight concession to customers located in 701-1,400 kilometres from the mines could result in them lifting substantial domestic coal in place of coal sourced from abroad, due to lesser cost in coal conveyance,” said a senior company executive.

Substituting imports

CIL’s coal would then be competitive with the landed price of imported coal and customers may opt for domestic coal.

The country currently imports close to 240 million tonnes (mt) of coal.

Out of the 126 coal-based thermal plants linked with CIL, as many as 14 are located over 1,400 kilometres from clients, and are eligible for the freight concession presently. “This prompted CIL to approach the Railways to seek freight concession in distances 701-1,400 km as well to bring more customers under the ambit of the scheme. If this happens, it would be a shot in the arm for CIL in its efforts to substitute imported coal with its own produce,” the release said.

Close to 70 per cent of the company’s overall supply consists of G9 to G13 grades of coal for which the freight price is 40-45 per cent of the total landed cost at the consumption point. With the increased distance above 701 km,the freight cost climbs up further. If concession in freight price is offered to customers falling in this range, it would be beneficial to coal producers to step up domestic supplies, substituting imported quantities.

While the price of CIL’s coal is considerably lower than that of imported coal, statutory levies and rail freight make the landed cost of its coal less competitive than imported coal, particularly in the western and southern parts of India.

The company has been trying to push high-grade coal from select subsidiaries to coastal consumers and is targeting import substitution of 70-80 mt in the southern and western parts of the country.

The company had recently introduced a special spot e-auction scheme for coal importers with a view to step up sales and reduce the country’s dependence on imports.

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