Coal India Ltd (CIL), the state-owned miner, which had brought down the reserve price on coal sold through auction to nearly zero due to Covid-19 induced poor demand, is now looking to increase the reserve price.

The CIL board has approved a reserve price of up to 10 per cent for the auction in October, a senior marketing executive told BusinessLine on conditions of anonymity.

“When the pandemic struck and the lockdown was announced, we realised that there is going to be a drop in demand and a cash crunch for companies, so we brought down our reserve price to almost zero for both the regulated and non-regulated sectors. But right now, we feel demand is picking up, so we will try to increase the reserve price for the auction,” the official said.

Based on the response garnered in the auction in October and the amount of premium earned, CIL will take a call on the reserve price for November.

“We will act as the market tells us.....there will be an auction in October. (We will see) what premium is obtained, and then take a decision,” he added.

A higher sale through the auction route would help the company garner better profitability as the average price realisation on e-auction is usually better than the sale through the FSA (fuel supply agreement) route.

Higher volumes

The aim of the company is to keep its profit margins stable by tweaking both price and quantity with a greater emphasis on increasing the volume sale.

The lowering of the reserve price during the initial months of this fiscal helped CIL book almost 65 per cent higher sale through the auction platform this year as compared to last year.

During the period from April-September 2020, the country’s largest miner booked close to 41.4 mt of coal through the auction route, as against a sale of around 25.1 mt during the same period last year.

For the financial year 2019-20, CIL had booked sales to the tune of 66 mt through the e-auction route.

“We tried to push coal as much as possible so that nobody is deprived of it or forced to pay more,” he said.

Shoring up sales

Apart from focussing on sale through the e-auction route, the company is also trying to shore up offtake by offering coal to power generators beyond their ACQ (annual contracted quantity). The facility would be made available to those FSAs which have come through the LoA (Letter of Assurance) route, and not to those who had won their bid quantity in auctions. The company has been getting a good response on the same.

Coal India has been taking initiatives to shore up sales under the FSA route by providing certain relief to its customers. CIL had recently allowed power companies to use a Usance Letter of Credit for the payment of coal instead of a cash advance, which is mandated for supplies made under FSA.

“We did whatever was possible to help our consumers. We provided the option of Usance LCs so that consumers can keep their liquidity. This will give them a credit period starting from 15 days up to nearly three months, and in some cases even six months,” the official said.

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