Coal India’s one billion tonne target

Sankar Ray

The top brass of Coal India Limited, India’s unassailable monopoly entity in coal industry and, the world's largest coal producer, is on pins and needles due to tapering off of demand. The CIL’s ambition of reaching an annual output level of billion tonnes by 2020 –hitherto a realistic target- has suddenly turned into a mirage. This pessimism is scripted in a recent report prepared by India’s largest public sector undertaking. Although remaining under wraps, it has been circulated to the unions that are a part of statutory Joint bipartite committee for the coal industry (JBCCI) on conditions of secrecy.
Its projected output of 724 million tons in 2016-17 is very likely to be anywhere near as until September 2016, the company produced only 230 MT. In 2015-16, CIL’s estimated production was 538 MT and 494 MT in 2014-15. Unions disagree with the pessimistic projections saying that it’s an alibi to counter demands for higher wages and better working conditions. “It reflects crassest form of economism”, quipped director (finance) of one of the steadily earning post-tax profit, criticising the stand of unions, adding further, “they are not worried at all about the grim reality faced by the CIL and its subsidiaries most of which will find generation of surplus very difficult after the pay hike at the end of on-going 10th JBCCI”. The additional burden for over three lakh employees including 70,000-plus officers may cross Rs 4500 crores.
Former CIL chairman Partha Bhattacharyya who catapulted CIL to unprecedented heights, told this correspondent, “there are serious clouds in the sky arising mostly from Govt pursuing renewables at the cost of coal based power generation. The plant load factor of coal based plants are down to 60 per cent from a high of close to 80 p.c seen in 2007-08. This amounts to foregoing 300 bn units of power generation & destroying commensurate coal demand of 200 mtpa. If growth in coal production is constrained by demand, the ability of the company to absorb cost increases is severely compromised. It is important to aggressively seek better utilization of thermal power capacity by restoring PLF to 80 p.c. levels. The resultant additional generation of power will entail only variable cost of coal (Rs.1.50 - 1.75) & will be the most affordable. The coal demand will grow by 200 mtpa enabling CIL to absorb cost increases. Most importantly 200 mtpa coal will lead to additional contribution of Rs.8000 crores annually to Clean Environment Fund to support renewables!! TUs must strongly lobby for this from their survival point of view”.
A former general secretary of Coal India Officers’ Association, now super-annuated, differs with his top boss while working under him. “Cost cutting efforts are superficial. What about the yearly cost of steadily escalating corruption and nepotism? This is several times larger than the incremental wage burden of three-four JBCCI revisions together.”
Another vexatious area is price of imported coal. Paranjoy Guha Thakurta in Economic and Political Weekly (Nearly Rs 10,000 crore out of Rs 29,000 crore artificially increased import bill , passed on as power tariff to consumers by 40 large power companies), warned against rising import of steam coals into India, in a detailed study, published in February 2016. It was said: “In a country where electricity and coal shortages are recurrent, imports help to secure supplies. However, steam coal imports in India have come at a high cost for power utilities, state distribution companies, and the economy at large. While international coal prices have declined significantly since the middle of 2011, the price of coal imports into India surged after 2011 due to a change in pricing regulation in Indonesia, its main steam coal supplier.”
While Indian power utilities built power plants based on low Indonesian coal prices, the alignment of Indonesian coal prices with international coal prices, for both existing and new contracts, derailed this strategy and forced the power utilities to renegotiate their contracts with state distribution companies. This transferred the losses of the power plants to state distribution companies, which were unable or unwilling to pass through the cost to enduser customers.
The increase in imported coal prices was exacerbated by the depreciation of the rupee. The coal import bill consequently jumped from $9.1 billion in FY2011 to $16.5 billion in FY2012, and it has remained elevated since then. In FY2015, surging coal imports erased the 18 per cent decline in import prices observed that year and have seen the coal import bill reach $17.1 billion. While this represents only 3.8 per cent of India’s trade balance, it adds an important financial dimension to security of supply.
Former Coal Secretary Anil Swarup showed concern about the rising coal import that has a bearing on the balance of payments position. Speaking at seminar on “India’s coal sector - vision 2020”, organised by the MCC Chamber of Commerce and Industry in Kolkata, last year, he stated “Power generation companies owned by Centre and States imported 35-40 million tonnes of coal in 2015-16. We have cut it down by 15 mt this year. After March 31, 2017, there will be zero imports by public sector generation companies,” Swarup suggested a remedial action: beefing up washeries and setting up new ones. But different interests criss-cross and prevent viable paths to combat the crisis.
Coal industry in India has a serious crisis ahead but it can be taken on successfully to a considerable extent. But it is a policy matter to be decided at the top ministerial level together with corporate body of CIL. A big if smears around the issue. (IPA)

Thursday, 9 February, 2017