Coal India plans supplies above trigger level

Coal India Ltd (CIL) and its subsidiaries are now looking to supply coal to consumers above the trigger level to clear its 40 million tonne pithead stock, without which it has to think of scaling down production.

The trigger level for the power sector, under the new coal distribution policy, was decided at 65% of the annual contracted quantity (ACQ), whereas the fuel supply agreements (FSAs) were signed for an ACQ of 65% of the total requirement. The ACQ, according to the new coal distribution policy of 2012, would go up by 2% every year for four years and would stand at 71% in 2016.

So with the ACQ already raised, supplies of domestic coal to those under FSA have already been raised but there are still pithead stocks of coal, because production growth happened without commensurate acceleration in sales in the past few quarters.

A CIL official, on the condition of anonymity, said at one point of time the company thought of scaling down production as well as decrease prices of higher grade coal. But both would be detrimental to the company’s profitability, though coal price rationalisation is on the cards.

CIL was already considering an average 13% price increase across all grades but in the process of price rationalisation, prices of higher grade coal has been proposed to be decreased, while the prices of lower grade coal has been proposed to be increased.

Pit head stocks at present are more of higher grade coal, because many substituted imported coal for higher grade CIL coal to get a price advantage. Even the recent e-auctions could not sell the whole of the offered quantity.

Coal and power minister Piyush Goyal asked CIL chairman Sutirtha Bhattacharya to find out means for clearing stock. CIL is now identifying consumers whose offtakes have already surpassed the trigger level and are looking for more coal. CIL wants to offer them more domestic coal to meet their requirement. It is also trying to promote more e-auction sales, even though getting higher premium above the notified price is no more the motive.

Subhasri Chaudhuri, secretary-general of the Coal Consumers Association of India, said while there are penalties on both the supplier and the consumer in failing to supply, as well as lift the quantity of the trigger level, supplies above the trigger level by CIL would attract consumers to pay incentives to CIL, according to a clause of the FSA. “So consumers, if requiring more coal, will prefer imports over paying incentives, since cheaper imported coal is available,” Chaudhuri said.

But CIL, with its new director – marketing, SN Prasad, was trying to frame an aggressive marketing policy, in which offering above the trigger level was an option. Even restoring supplies of full or 100% requirement to power producers under the LOA route was another option which the marketing department was looking at.

CIL has been restricting supplies through ACQs and trigger level but with increased production these restrictions could be slackened. But then it would call for changes in the National Coal Distribution Policy, an official said.

CIL has kept a production target of 550 million tonne (mt) by the end of the fiscal while production reached 373.45 mt between April to December 2015 registering a 9.1% year–on–year growth. Offtakes grew 9.8% y-o-y to 389.29 mt but both production and off take fell 3% short of the actual target.