Pay hike blunts CIL edge before tougher race

KOLKATA: Coal India workers may be celebrating the 20% salary increase they won after a hard bargain, but with every such hike, the monopoly state-owned company may be rendering itself uncompetitive in terms of production cost just when the sector is set to be opened soon for private commercial mining.

Following the salary revision, labour accounts for 55% of the cost of production at Coal India compared with 50% previously and about 22% for most private coal miners.

The cost of extraction at the open cast mines of Coal India subsidiary Mahanadi Coalfields is about Rs 600 per tonne. Outsourced extraction costs about Rs 400 per tonne.

“The difference is basically labour cost,“ said a senior Coal India executive. “The recent salary hike would require Coal India to spend an additional Rs 5,667 crore annually. It is expected to increase the cost of production from Rs 1,190 per tonne to Rs 1,230 per tonne ­ a Rs 40 per tonne rise. Of this, Rs 600 per tonne would be labour cost. The average selling price is about Rs 1,500 per tonne.“

Most of Coal India's 2.98 lakh workmen are employed in underground mines, inherited when the company was formed. The cost of operations at these mines is very high, the executive said.

“We are now planning to close down some 100 such mines that are unviable. It is expected to bring down costs,“ he said.

In contrast, a very large mine operator is able to extract coal for its captive power plant at Rs 600 per tonne. An executive from this company said: “We use large equipment and latest technologies. Labour cost is less than 10% and comes to about Rs 50 per tonne.“

An executive from another large private company that offers mine development operating services said its labour accounts for 5% to 22% of production costs, depending on the thickness of the topsoil to be removed to extract coal.

“We need to quote costs that our customers find attractive. This we n achieve through multitasking. An individual who is a mining engineer can double up as a supervisor t and a technical guide. Use of better technology also keeps costs low. Average cost of production for mines that need heavy over burden removal is between Rs 600 and Rs 650 per tonne,“ said a senior executive from the company.

He said the differences are basically on labour cost, efficiency , higher productivity and lower margins from having one contractor for all activities on a turnkey basis.

Coal India worker unions are aware they may not be able to compete when private companies start selling coal, which is why they oppose the government's move to commercialise coal mining in the country .

“Private operators pay a fraction of the salaries that Coal India pays and we intend to intensify our movement against commercialisation in the next few days. It would include strikes next month to start with,“ said SQ Zama, secretary general of the Indian National Mineworkers' Federation.

The Coal India management, on the other hand, is starting to work on strategies to help them stay ahead, even though some said the company is unlikely to be in for competitive trouble.

“Coal India is likely to maintain its dominant position in the industry due to its global scale of operations, existing evacuation infrastructure and customer base,“ said Jayanta Roy , senior vice-president and group head corporate sector ratings, at ICRA. “The success of commercial mining, on the other hand, will depend on the nature and potential of the mines offered, infrastructure requirements as well as ability of miners to ramp up operations quickly , besides government policies in this regard.“

Former Coal India chairman Partha Bhattacharyya said the recent wage accord will increase the cost of production only initially.

“Nevertheless, it will get offset over time with a rise in coal production and reduction in manpower. A satisfied workforce will enable CIL to meet competition from commercial mining squarely,“ he said.